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Board Status Report 4th Quarter, 2000

Board Status Report 4th Quarter, 2000. November, 2000. Year 2000 Overall Progress: Moved from Concept to Reality. Formed Company Entered 4 Markets: Established Brand Established Risk Management Capabilities and Controls Established Financial Control Environment

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Board Status Report 4th Quarter, 2000

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  1. Board Status Report4th Quarter, 2000 November, 2000

  2. Year 2000 Overall Progress: Moved from Concept to Reality • Formed Company • Entered 4 Markets: Established Brand • Established Risk Management Capabilities and Controls • Established Financial Control Environment • Developed Systems and Operations Infrastructure • Completed CES Acquisition • Completed IPO • Met 3Q Financial and Operational Targets • Awarded PECO CDS Bid (Sub. to PUC Approval)

  3. Met 3Q Expectations and On-Target For 4Q

  4. Key Issues 1. Commodity Margins 2. Customer Acquisition 3. Opportunity to Accelerate Business Model

  5. 1. Commodity Margins: Pressure from Rapid Rises in Costs

  6. 1. Commodity Margins: Pressure from Rapid Rises in Costs $/MWhr

  7. Markets Analyzed for Margin Potential

  8. 1. Commodity Margins: Strategy • Continue to acquire customers • Develop new offers • Price up existing customers to keep overall margins • Diversify markets entered • Focus on gas in short-term; power in selected markets • Do not lock-in negative long-term margins

  9. 2. Customer Acquisition Weekly Mail Drops & Inbound Response

  10. 2. Customer Acquisition Weekly Enrollments

  11. PECO Is the Largest Marketing Acquisition Market, Accounting for 89% of Total Provisioned Customers Currently • Wet signature requirements in PSE&G have resulted in customer provision delays

  12. 2. Customer Acquisition: Issues • Response Rates • Wet Signature • AOL

  13. 2. Customer Acquisition: Strategy • Aggressively enter 9 new markets in H1 2001 • Change marketing to drive greater call to action • Drive to web • Re-negotiate AOL and diversify web relationships (e.g., eBay, Amazon, Yahoo)

  14. BuildBrand 3. Business Model: Original Expectation CustomerAcquisition Traditional Marketing • Convince to switch • Move to Action Initial Offer • Guaranteed savings • Incentives • 6 mo./1 yr/2 yr • 7.5% margin • Direct mail • Internet • $150/House 14

  15. BuildBrand 3. Business Model: Acceleration Opportunity CustomerAcquisition Traditional Marketing • Convince to switch • Move to Action Initial Offer • Guaranteed savings • Incentives • 6 mo./1 yr/2 yr • 7.5% margin • Direct mail • Internet • $150/House CustomerRetention and Management Portfolio Deals • Default supplier • De-Reg Sub • Aggregator • Co-Branded Reprice& Retain • <15% churn • 7.5% margin • <$150/House

  16. Existing Local Utility Challenge: Absorbing Pricing Risk Downside With No Upside • Many local distribution (“LDC”) utilities have sold or separated generation assets • Making LDC’s indifferent to who supplies the electricity commodity to its distribution customers • Default non-switching LDC customers must still be served by the LDC, forcing the LDC to purchase significant quantities of power supply in the competitive market (with no positive margin for the LDC) • The “Squeeze of Last Resort” - If/When wholesale power markets spike or experience prolonged period of high prices the LDC’s may be forced to “defer” or otherwise absorb the effects of higher power prices • Many regulatory jurisdictions are frustrated with the pace of deregulation/ competition as measured by the number and percentage of customers who have selected new power suppliers. This has led to discussion of forced customer migration away from the LDC’s

  17. Challenges Customer inertia Establishing perception of comparable reliability as incumbent Differentiating NewPower prior to maturation of brand Transaction Objectives Accelerate growth of its customer base Encourage switching from incumbents Achieve cost effective customer acquisition Challenges Pricing squeeze with little upside Limited market size within franchise area Limited brand value outside of franchise area Translating local brand and perceived reliability into economic value given significant scale requirements (systems, risk management, brand development) Transaction Objectives Maximize value of incumbency position Enhance earnings growth 3. The Opportunity Incumbents NewPower A “partnership” between NewPower and incumbent can accomplish both companies’ objectives

  18. Spectrum of Deal Structures Regulation: Acquisition ofUnregulated Books Acquisition ofRegulated Customers Provision ofStandard Offer Service Co-Marketing Description: • Acquire books of unregulated customers • Acquire a block of customers who meet NewPower’s criteria in either a negotiated deal or RFP • Win RFP to provide standard offer service to all customers who do not switch to ESPs • Enter into a co- marketing agreement w/incumbent to migrate regulated customers to unregulated products • No ongoing regulation • PUC Approval • No on-going regulation • PUC approval; potentially legislation • Requirement to provide universal service • None Services Provided: • Unregulated commodity and services • Non-energy products • Unregulated commodity and services • Non-energy products • Quasi-regulated commodity and services • Unregulated commodity and services • Non-energy products Many options could represent an excellent opportunity for combined Enron/NewPower partnership solutions

  19. The Enron/NewPower Partnership Opportunity Power Supply Market Small ShortExposure toMarket LDC ENA provides“Full requirements”power supply contract customized for LDC ENA T&D WiresCharge(B:C) Default PowerSupply Service T&D WiresCharge (A) Default PowerSupply Service (A) NewPower EES T&D WiresCharge Default Svc (B) Direct Retail Sales Acquire ___% of LDC Customers (C) Residential & SmallC&I Customers Industrial LargeC&I Customers

  20. Provision of Competitive Default Service • Opportunity • A number of utilities have issued RFPs for competitive default service • PECO, Maine Utilities, Texas Utilities • Potential for medium term contracts to serve large blocks of customers • Ability to generate net margin without customer acquisition cost • Upside from cross-selling and up-selling to these customers • Status • On October 18, 2000, executed default service contract with PECO • Up to 299,000 residential customers • 3 year term • Fixed discount to PECO shopping credit • NewPower is aggressively responding to other RFPs • Active Prospects • Maine Utilities (600,000 electric customers; bid due 12/07/2000) • Conectiv (500,000 electric customers; discussing negotiated deal to assume 100% of Delmarva Power & Light’s default service obligation)

  21. Acquisition of Regulated Customers • Opportunity • Texas legislation requires transfer of all residential and small commercial customers to affiliated REPs on 1/01/2002 • Affiliated REPs must lose 40% market share in order to: • Offer competitive products in their own service territory and • Mitigate stranded cost recovery clawback (maximum payment of $150 per customer) • Legislation does not prohibit the sale of affiliated REPs • Status • Have had discussions with all Texas utilities subject to deregulation • Beginning to focus on other states with similar deregulation models • Active Prospects • Acquisition of 40% of Reliant’s REP (560,000 electric customers) • Acquisition of 40% of TXU’s REP (890,000 electric customers) • Acquisition of 100% of TNP’s REP (200,000 electric customers) • Acquisition of 100% of NiSource’s Indiana regulated customer base (400,000 electric customers)

  22. Acquisition of Unregulated Books • Opportunity • With the recent power and gas price volatility, a number of ESPs are considering exiting the retail energy business • Exelon (200,000 electric customers) • Utility.com (50,000 electric customers) • Status • Developing a target list of all ESPs that focus on residential and small commercial customers • Will begin actively marketing to target list immediately thereafter • Active Prospects • Utility.com (50,000 electric customers) • Power Resources (35,000 gas customers) • Reliant non-Texas gas book (10,000 gas customers)

  23. Co-Marketing Agreements with Utilities • Opportunity • Utilities are looking for ways to capitalize on strong local brands in a business with significant scale requirements (operations, risk management) and uncertain profitability prospects • Status • Have developed a target list of utilities in states that deregulate by 2002 • Have pitched concept to 8 utilities to date • Active Prospects • Cinergy (license Cinergy brand; 550,000 potential electric customers) • Conectiv (license Conectiv brand; 800,000 potential electric customers) • Sempra (provide turnkey private label products to Sempra; 1,000,000 potential electric customers)

  24. Summary • Successfully making transition from concept to reality • Many positives on which to build • Met 3Q targets; will make 4Q • Business model acceleration opportunity • Commodity prices represent both problem and opportunity • Currently analyzing 2001 expectations; expect strong growth

  25. Back Up

  26. Markets Analyzed for Margin Potential

  27. Hedge Strategy

  28. Profitability Scenario Analysis

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