Re: New Marketing Company

For your info- MK
---------------------- Forwarded by Mary Kay Miller/ET&S/Enron on 12/01/2000
12:54 PM ---------------------------

Shelley Corman
12/01/2000 12:50 PM
To: Steven Harris/ET&S/Enron@ENRON
cc: (bcc: Mary Kay Miller/ET&S/Enron)

Subject: Re: New Marketing Company

Steve,

Yes, Dan did ask my opinion on the feasibility of forming a new affiliate
company (NEWCO). I know he asked many others as well. Here is what I told
him:

There is no regulatory prohibition on NEWCO holding capacity on our pipelines.
NEWCO will have to be set up to meet the creditworthiness standards or else
we raise the risk of having to lower the creditworthiness test for others.
Under the current rules, even though NEWCO will hold capacity, NEWCO will not
be a Marketing Affiliate (i.e. requiring separate staff/systems) etc. so long
as they are not buying or selling gas. On the flip side, if the new
affiliate sells gas Including delivered gas), the entity will be a Marketing
Affiliate and we would have to set if up so all the separation rules are
met. I anticipate that FERC's marketing affiliate rules may change in 2001
such that any energy affiliate, including capacity managers, will be subject
to the marketing affiliate standards of conduct. If the success of NEWCO
depends on sharing unposted information, this strategy is not likely to last
very long.
Most significantly, when the new affiliate wants to resell/trade its capacity
rights, it will have to do so through the pipeline's capacity release rules.
The new affiliate can arrange pre-arranged transactions of less than 30 days,
but any other deals would have to be posted for bid. But, I don't think we
should be scared off just because the deals would have to go through capacity
release. NEWCO could do less than 30 day releases at above max. rates on a
prearranged basis. NEWCO could also do 1 year of less prearranged deals at
above max rate, they would just have to be posted to see if anyone wanted to
match the deal.

The crux is that there is no regulatory prohibition standing in the way of
setting up a new affiliate, but it is important to figure out what the new
affiliate's objective is.
If the point is to capture short-term, above max rate deals without going
through a negotiated rate posting, then we may follow a fairly simple
strategy of setting up a limited NEWCO to buy and sell capacity only.
If the point is to "churn" capacity trading, then the issues are essentially
the same as those involved in setting up bid/ask trading on EOL.
If the point is longer-term, total energy type of deals, then we just need to
understand that the new affiliate will be a marketing affiliate.

You ask what is being done to further this idea. I think we need some
clearer marketing vision of how NEWCO plans to make money (through above max
rate deals in capacity release? through rebundled deal? ) before a more
definitive list of regulatory steps can be developed.

Steven Harris
12/01/2000 12:26 PM
To: Shelley Corman/ET&S/Enron@ENRON
cc:

Subject: New Marketing Company

Shelley,
I know Danny talked to you a while back about us creating a new company to
hold capacity on other pipes, etc. What ever happened to that idea? I would
really like to pursue that avenue as I believe we may be missing out on some
things we could do. Please let me know the status. Thanks.

Steve