Topock

Here's the memo I mentioned. Obviously, we have already used up all the good
ideas and are down to the fall back plans. DF
---------------------- Forwarded by Drew Fossum/ET&S/Enron on 06/27/2000
05:58 PM ---------------------------

From: Drew Fossum 06/27/2000 02:24 PM

To: Steven Harris/ET&S/Enron@Enron, Jeffery Fawcett/ET&S/Enron@ENRON, Louis
Soldano/ET&S/Enron@ENRON, Tony Pryor/ET&S/Enron@ENRON, Susan
Scott/ET&S/Enron@ENRON
cc: Maria Pavlou/ET&S/Enron@ENRON, SStojic@gbmdc.com, Mary Kay
Miller/ET&S/Enron@ENRON, Michael Moran/ET&S/Enron@ENRON

Subject: Topock

PRIVILEGED AND CONFIDENTIAL: ATTORNEY CLIENT PRIVILEGE

Here's an idea: PG&E's world has changed a bit since they executed the '97
interconnect agreement. Back then, I think the majority of Line 300 capacity
was held by PG&E for the benefit of the core customers. Some of the capacity
was held by contract transport customers, but not that much. (maybe
100,000-200,000 dth out of 1.14 bcf/d??) Now, I understand that PG&E still
retains some line 300 capacity for the core, but a lot more of it is
allocated out to contract transport customers. Do you guys know how much was
in each of those buckets then and now? My theory is as follows:

1. As to the capacity that it retains in its own name for the benefit of its
core customers, PG&E has absolute discretion as to how to use the capacity.
They can nominate and schedule volumes at TW/Topock some days and nom. and
schedule zero on others. They can be totally arbitrary and not schedule
anything for extended periods even though they are paying demand charges on
TW and may incur costs on their gas purchase contracts in the San Juan or
elsewhere (eventually this would get the CPUC's attention, I guess). Even if
there were no interconnect agreement or operating agreement with TW on the
pcb issue, there is just not much we can do to control how PG&E dispatches
gas supply.

2. PG&E's transport contracts with third parties are a different story.
Those parties, not PG&E, decide how much to nom. every day. If PG&E is
going to refuse to schedule a valid nom. from a transport customer, PG&E has
to declare force majeure on its system or declare a capacity
constraint-related curtailment. PG&E has some discretion as a prudent
operatory of its system, but not nearly as much discretion as it does as to
its own portfolio.

3. If 1 and 2 are correct, then the question arises: Does PG&E have to
declare force majeure on its own system in order to shut us down at Topock?
If the amount of capacity they have in bucket no. 1 above exceeds 300
million/d, they may be able to shut us down and continue to honor all of
their transport contracts. But what if PG&E's transport customers continue
to nominate TW/Topock even though PG&E is making alternative receipt point
capacity available for them at El Paso Topock or somewhere else? If TW
stands by ready to confirm those customers' noms, then I think we can force
PG&E to declare force majeure on its own system.

4. I'm not sure no. 3 above makes any difference for us. At minimum, it
focuses the attention on PG&E and not us. Remember Erin Brockovich? They
will hate that. I'm sure their spin doctors will point the finger at us, but
once they declare force majeure, the PR damage is done. Also, and more
importantly, the standards applying to PG&E's declaration of force majeure
are much more stringent than the standards under the operating agreement.
We will probably have a much stronger position in litigation if the issue is
"did PG&E have adequate basis for declaring force majeure" than if the issue
is "did TW violate the 1 ppm standard under the operating agreement."

Please let me know what we know about the capacity situation on Line 300 and
give me any reactions to this idea. Thanks. DF