Natural Gas Price Increase

Please post and circulate to the team.
----- Forwarded by Steven J Kean/NA/Enron on 09/27/2000 05:29 PM -----

Robert Neustaedter@ENRON_DEVELOPMENT
09/19/2000 11:44 AM

To: Steven J Kean/NA/Enron@Enron, Richard Shapiro@EES, James D Steffes@EES,
Mark Palmer/Corp/Enron@ENRON
cc: Harry Kingerski@EES
Subject: Natural Gas Price Increase

As discussed in last Friday's meeting on strategies related to higher energy
prices, Harry asked me to develop the attached projection of delivered gas
prices for this winter.

The projection is based upon EIA's monthly analysis of delivered gas prices
for residential, commercial and industrial customers for selected states
(Connecticut, Virginia, Illinois and Texas) for the 1999-2000 winter heating
season (Nov-Mar). Assuming pipeline and LDC mark-ups remain constant, the
delivered prices were adjusted for the NYMEX Henry Hub projection of wellhead
prices for the 2000-2001 winter period. A national projection is also
included.

Because the commodity portion of the gas bill for residential customers is a
smaller percent of the total bill compared to commercial and industrial
customers, the increase for residential customers will be less pronounced
than for commercial or industrial customers. In addition, LDC purchased gas
cost mechanisms will moderate the effect of the price increase to some extent
because monthly price increases are averaged out over an extended period (12
months in some cases). Furthermore, some state public utility commissions
(e.g. Connecticut) are conducting meetings with LDCs to discuss looking for
ways to lessen the impact of the projected increases. That being said, Nipsco
recently announced residential prices are expected to increase 50-60% this
winter over last winter (in line with the projection for Illinois).

If you are interested in a similar projection for other states, or have
comments with respect to the above let me know.