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Enron Mail |
Drew, I think your last question is the one most critical to us at this poi=
nt. The marketers can go out and start selling the project but are having a= hard time defining how the capacity will be allocated. I left a message ye= sterday for Mary K. regarding these same issues. Thanks. =20 Drew Fossum 02/14/2001 04:38 PM To:=09Susan Scott/ET&S/Enron@ENRON, sstojic@gbmdc.com, Mary Kay Miller/ET&S= /Enron@ENRON, Keith Petersen/Enron@EnronXGate cc:=09Shelley Corman/Enron@EnronXGate, Maria Pavlou/Enron@EnronXGate, Steve= n Harris/ET&S/Enron@ENRON, Jeffery Fawcett/ET&S/Enron@ENRON, Kevin Hyatt/ET= &S/Enron@Enron, Lorraine Lindberg/ET&S/Enron@ENRON=20 Subject:=09TW Expansion There were several questions left for legal/regulatory to work on at the cl= ose of our meeting today. I'll try to restate them, and add my initial tho= ughts, so we can all be sure to focus on the correct problems. =20 Q 1. Can TW use "negotiated rate" agreements for its new 150 mm/d expansion= ? =20 A. Yes. Independence, Guardian, and other new pipeline projects were cert= ificated on the basis of negotiated rate contracts. The only restriction i= s that we need to always offer cost-based recourse rate service as an alter= native to negotiated rates. We hope to use negotiated rate agreements for = the entire 150 mm of capacity, but we won't know until the contracts are ex= ecuted how much of it will be negotiated rate contracts and how much of it = will be under recourse rate contracts. I guess that means that in the cert= . app., we just tell the commission that we will be 100% at risk and that g= iven the huge interest in the open season, we have no doubts about our abil= ity to sell the full 150. We should also tell the Commission we expect to = sell the capacity using negotiated rate contracts or recourse rate contract= s or a combination of both. =20 Q 2. Can we give prospective customers a "cafeteria style" menu of options= (to steal Jeff's term), like the following: =091. 5 yr. neg. rate deal at a locked in $.60 plus fuel and surcharges (o= r whatever number we decide on) =092. 10 y. neg. rate deal at a locked in $.45 plus fuel and surcharges =093. 15 yr. neg rate deal at a locked in $.35 blah blah =094 . 15 yr cost based recourse rate plus fuel and surcharges (importantl= y this option is not locked in and will float with TW's actual rate levels = and fuel retainage percentages) A. I think the answer here is "yes." Whatever options we come up with for= 1, 2, and 3, we will always have to offer 4 as well. Susan and Steve Stoj= ic: please confirm that we have the right to define specific negotiated ra= te options and stick to them. Otherwise, this negotiated rate approach cou= ld get completely unstructured such that we end up with some guys taking ou= r specific options and other guys custom tailoring weird variations (like a= 7 yr, 231 day contract at $.51764, for example). I'm not sure that would = be a bad thing, but we need to think about it. We need to be sure we can t= ell a customer "no" and make it stick if he tries to mix and match by askin= g for the 5 yr term and the $.35 rate, for example. I think we can lay out= options of our choosing and then enforce a "no substitutions" policy (this= is sticking with the "cafeteria" theme) but we need to be sure. =20 Q.3. If we can use the "cafeteria options" approach, how much flexibility = do we have in structuring the options? =20 A: This one is hard. We need to be sure that the price and term we choose= to offer for options 1-3 is solely within our discretion. We don't want t= o be second guessed by FERC as to whether we should have offered option 1 a= t $.58 instead of $.60. Susan and Steve: if you guys confirm that we have = discretion in how to structure our negotiated rate options, does that mean = we can slant the economics of the negotiated rate options so they are a bet= ter deal than the recourse option (for most shippers)? I.e., could we deli= berately incent shippers to sign on for the short term deals--i.e., by off= ering options 1-3 at $.55, $.45 and $.40 instead of the $.60, $.45, and $.3= 5 shown above. I suspect that is what Guardian and the other pipes did to = obtain 100% subscription under neg. rate deals. =20 Q.4. How do we allocate capacity to customers if demand exceeds supply??? A. Ideally, we'd be able to allocate the 150 to the guys who want to buy i= t the way we'd prefer to sell it. Under the above example, assuming Stan, = Danny and Steve decide short term deals are better, what if we get 100 mm/d= of offers on each of the 4 rate/term options described above. That's 400 = mm/d of demand for a 150 mm/d project. Can we sell 100 to the guys who wan= t option 1 ($.60/5 yrs) and the remaining 50 to the 10 yr/$.45 guys? That = really hoses the recourse bidders. Do we have to cover the recourse demand= first and then allocate the remaining capacity pro rata to everyone else? = Pro rata to everyone? Under the rule that negotiated rate bids have to be= deemed to be at max rate for purposes of allocation, pro rata to everyone = may be the right answer. Or at least its the answer until we've filled the= recourse rate guys' orders, then we can give the remaining capacity to the= neg. rate guys whose bids we value most highly (using some objective nondi= scriminatory calculation of course). Ugh.=20 Susan and Steve--please take a crack at questions 2-4. I think 1 is answer= ed already. I haven't done any research yet, so maybe these questions are = easier than they currently seem to me. Get me and MKM on the phone at your= convenience to discuss. We've gotta move quick so the marketers can get o= ut and sell this stuff. DF =20
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