Pueblo

Given the numbers we got from Mark Baldwin, is this where we are?:
1. The overall economics of the pipeline project have to be supported almost
entirely by the new power plant. At most, we could assume maybe
5,000-10,000/day of gas load from industrials near the airport, and another
X,000 from Kirtland's gas load. This assumed load will ramp up over several
years (or longer depending on how long these folks existing contracts are)
and not be available immediately.
2. We know the bogey for pricing the electric contract for DOE. Its
probably $0.042/KWh, less 15-20% to make it attractive, or maybe $0.056, less
15-20%. Either way, a low rate.
3. We now know the best case scenario for cost on the pipeline--about $17 mm
in the 16" configuration, without the Isleta lateral or the lateral over to
the power plant. Maybe about $20mm total?
4. We don't have absolutely reliable info on electric transmission
constraints from the proposed plant to Palo Verde, so I'd suggest that for
now we just assume that we would be unconstrained on power sales at Palo
Verde. Are there alternative liquid markets available that might have better
pricing? Ercot? Pub. Serv. Colorado?
5. I'm not entirely sure how you guys are looking at the overall economics,
but to my non-business guy mind, the following scenarios (or something
similar) stick out as the key benchmarks that will decide whether the project
makes sense:
A. Worst Case:
Assume we build a 75 mw power plant (i.e., assume no extra power to sell in
spot market) and assume we get the Kirtland gas load but no additional gas
load from the customers Baldwin talked to . If the rate for the gas line is
the minimum rate that Enron could live with (based on our internal hurdle
rates) can we hit the DOE target power price and have any $$$ left over? I
suspect this scenario is upside down. Should we look at two alternative
configurations for the power plant--combined cycle and simple cycle?
B. Mid Case:
Assume we size the power plant at 150mw (or some similar size based on a
turbine configuration that makes sense) and that we sell the surplus power at
Palo Verde prices less Albequerque-Palo Verde transmission costs. Again,
assume no incremental gas load except Kirtland. If the gas pipeline rate is
set at the minimum rate Enron can live with, does the power plant make enough
$$$ to make the project work?
C. Wildly Optimistic Case:
Same as mid-case, except add Baldwin's gas load and start ramping in some
estimated amount of additional gas load when NM gas restructuring kicks in in
2003 (did I get the year right?). Also, start ramping in some estimated
amount of high priced retail power sales to back out the Palo Verde spot
sales at whatever year NM retail electric restructuring is expected to kick
in. (also 2003, I think). With optimistic assumptions like this, does it
make sense?

Tino suggested a meeting to talk economics in detail around the first of
May. Ideally, we'll have a feel for the above relationships, and the
transmission constraint situation, by then. Thanks. DF