|
|
Enron Mail |
---------------------- Forwarded by Drew Fossum/ET&S/Enron on 04/19/2000
09:47 PM --------------------------- Drew Fossum 04/19/2000 09:45 PM To: Mary Kay Miller/ET&S/Enron@ENRON, Glen Hass/ET&S/Enron@ENRON, Mary Darveaux/ET&S/Enron@ENRON, Maria Pavlou/ET&S/Enron@ENRON, Susan Scott/ET&S/Enron@ENRON cc: Steve Harris/HOU/ECT@ECT, Kevin Hyatt/ET&S/Enron@Enron, Lorraine Lindberg/ET&S/Enron@ENRON, James Centilli/ET&S/Enron@ENRON Subject: Pueblo Here's a weird one. Could we structure the Pueblo pipeline project with the following characteristics: 1. The lateral from TW's mainline to Albeq. is wholly TW owned (i.e., no joint venture with Langley); 2. The lateral is 100% debt financed (i.e., it is expected to cost about $20 million, which TW would borrow in a project financing, secured by the revenue stream under the firm contract for service on the new lateral); 3. TW files for a 7© certificate, seeking an incremental rate for service on the new lateral; Any service on the TW mainline will be subject to TW's existing rates; 4. TW designs the max. incremental rate based on normal cap. structure, deprec., O&M, allocations, etc. 5. TW has one contract for 40,000/day, for 10 years for service on the lateral; 6. The rate for that one customer is a negotiated rate that is based on an alternative ratemaking study under which the customer pays enough $$ to cover debt service on the project financing, incremental deprec., O&M, A&G, etc. No allocated costs or any other costs related to TW's preexisting facilities are included in the negotiated rate. 7. TW is entirely at risk for cost recovery, but the one contract covers all actual costs, except return and taxes on the new line. Basically, the one contract locks in a floor of break even cash flow. If TW fails to lock up any additional customers there will never be any "taxable income" for the line since debt servicing costs and other expenses completely eat up the revenue under the one big contract. Therefore, there will never be any return or taxes related to the new line, unless TW locks up additional contracts. 8. Any additional contracts TW locks up will generate TW's upside for the project. The question is can we do this? Will FERC let us build it? Will FERC let us oversize the pipeline significantly larger than the 40,000/day that the one big firm customer needs? I'm sure I've left out important facts, so I'll try to grab you tomorrow to discuss. The overall objective is to create the "leanest" possible initial cost structure for the pipeline, and therefore for the Langley power plant, consistent with TW being able to get the new pipeline built. I.e., lets get the pipe built and help the power plant get to a cheap enough elec. rate that they can get their big contract with the govt. and economically sell surplus off-peak power onto the grid. Even if the new incremental rate for service on the lateral is a break even rate, TW's upside comes from incremental throughput from the Permian to the new lateral, at a rate of $___/MMBtu, and from any additional bypass load we can pick up from PNM (it looks like TW's rates off of the new line will beat PNM's industrial rates). I appreciate your input on this. DF
|