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Enron Mail |
We will have to do project economics by pipeline as well as in total. A
way to allocate costs however is to do so according to the benefits received. That way no one can argue that they didn't get the same deal. If the deal makes sense from a group standpoint, then it should make sense from an individual pipeline standpoint. Project economics need to be looked at in 2 ways. 1) The project economics on a stand alone basis and then 2) the more accurate approach of what does the project do to the entity (the with and without approach). The accounting return in the second approach has become actually the more important measure of success. From: Denis Tu on 11/08/2000 09:13 AM To: James Saunders/FGT/Enron@ENRON cc: Caroline Barnes/FGT/Enron@ENRON, Rod Hayslett/FGT/Enron@ENRON Subject: Re: Project Economics When we meet on Friday after Rod's meeting, should we also address the pipeline "cost allocation" issue if we have to continue do project economics by pipeline in addition to by ETS? James Saunders 11/07/2000 11:28 AM To: Denis Tu/FGT/Enron@ENRON cc: Caroline Barnes/FGT/Enron@ENRON, Rod Hayslett/FGT/Enron@ENRON Subject: Re: Project Economics It's a bit difficult to distinguish capital vs. o&m from your list below, since you've used the same item description in both categories ie., "Resources" . I would be more than happy to develop a specific list or matrix with you. Additional "discretionay" items to consider are overheads, perhaps AFUDC, and perhaps indirect allocations (ie corporate allocations). There is more than capital and o&m to consider when developing a comprehensive project economic analysis or accounting recap. From an economic standpoint its critically important to identify all of the cash flows and their timing, both "in" (savings) and "out", and not worry about accounting. From an accounting standpoint; and if an ORR is necessary its important to identify the accounting flow of a project which will always vary from the cash flow. Components may include: Initial Capital, Ongoing Capital Overheads and AFUDC, if applied Net O&M, direct and indirect 'Book"Deperciation Tax Depreciation Advalorem Current taxes Deferred taxes "Capital" allocations From: Denis Tu on 11/07/2000 09:21 AM To: Caroline Barnes/FGT/Enron@ENRON cc: Rod Hayslett/FGT/Enron@ENRON, James Saunders/FGT/Enron@ENRON Subject: Re: Project Economics In addition to the DCF return, I believe Rod wants us to determine the Operating Rate of Return (ORR). If a new project is to replace an old project, we also need the net book value of the old project. I am forwarding my September e-mail on Project Evaluation to you all. Caroline Barnes 11/07/2000 08:21 AM To: James Saunders/FGT/Enron@ENRON, Denis Tu/FGT/Enron@ENRON cc: Subject: Re: Project Economics Please read my note to Rod and his reply. Thanks...cvb ---------------------- Forwarded by Caroline Barnes/FGT/Enron on 11/07/2000 08:20 AM --------------------------- Rod Hayslett 11/07/2000 06:29 AM To: Caroline Barnes/FGT/Enron@ENRON cc: Subject: Re: Project Economics Pretty good. I would suggest you run these by Jim Saunders (to check on what should be capitalized and what shouldn't) and by Denis Tu (to see if he has run across any other things you might have left out in his experience). As to the question "How will we account for the additional O&M budget dollars which could start hitting the O&M budget in the same year the project is completed?" that's pretty easy, they aren't authorized to be spent. If the dollars for the support of projects aren't budgeted or specifically authorized in the project funding document, then something must be cut to allow for the dollars to be spent, or we will have to request additional funding to carry out the program. When we do that, unless we are beating budget somewhere else, it would appear that we would not meet our goal and therefore the bonus pool of dollars would be reduced directly as a result of the additional costs. (Bonus pool = about 2.5% of net income.) This is why it's so important to get the numbers right as soon as is practical. Caroline Barnes 11/06/2000 08:12 PM To: Rod Hayslett/FGT/Enron@ENRON cc: Subject: Project Economics Steve asked me to put together something for everyone to follow in regards to Projects ASAP. If my understanding is correct, to do the economics on a project, all costs must be included, ie. capital dollars, O&M dollars, and ongoin O&M dollars for the estimated project life. This is a sample breakdown of what I came up with: Current year Budget Capital Dollars Hardware Software Resources (all areas IT and User) - includes pagers, cell phone, salaries and benefits, etc. -internal existing -internal additional -contractors existing -contractors additional Project related Expenses Special services (dedicated phone line while in development, etc.) Other O&M Dollars Training and related expenses Resources (all areas IT and User) - includes employee expenses (training, pagers, cell phone, salaries and benefits/taxes, etc.) -internal additional -contractors additional Special services Other Future Years Budget O&M Ongoing Dollars - project life Hardware maintenance Software maintenance Resources (all areas IT and User) - includes employee expenses (training, pagers, cell phone, salaries and benefits/taxes,etc.) -internal additional -contractors additional Special services Other Current and Future Years Budget Capital/O&M Offset Dollars - project life (savings) Hardware Software Hardware maintenance Software maintenance Resources (all areas IT and User) - includes employee expenses (training, pagers, cell phone, salaries and benefits/taxes, etc.) -internal existing -internal additional -contractors existing -contractors additional Special services Other I know we did not budget O&M costs related to projects in the 2001 budget because it would be unknown at budget time and not known until the project is actually studied in detail to be recommended to be done. How will we account for the additional O&M budget dollars which could start hitting the O&M budget in the same year the project is completed? Once a project is completed it is easy to account for the additional O&M dollars in future budgets. Please let me know ASAP if I am on the right track with this. From what Steve stated in his staff meeting and our brief phone conversation this is what I came up with. Thanks...cvb
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