Cushion Gas Issues

---------------------- Forwarded by Brian Redmond/HOU/ECT on 01/17/2001 12:08
AM ---------------------------

Brian Redmond
01/16/2001 11:04 PM
To: Jim Coffey/HOU/ECT@ECT, Wes Colwell/HOU/ECT@ECT, Joseph
Deffner/Enron@EnronXGate, Patrick Wade/HOU/ECT@ECT
cc: Timothy J Detmering/HOU/ECT@ECT
Subject: Cushion Gas Issues

To all:

Please find a draft of the strategy presentation requested by Dave and John
at our meeting on Tuesday. I have also attached an email describing a
potential tax liability on the Cushion Gas. Lets discuss these at our
meeting planned for 1:00 Wednesday. We can meet in my office 3566.

Jim, the cost/volume numbers in the presentation need some work and the
accounting treatment may be off as well - can you revise and bring to the
meeting?

Tim/Tom/Jim, FYI, Comments? You are welcome to attend or can get updated
afterwards.

Regards,
Brian

---------------------- Forwarded by Brian Redmond/HOU/ECT on 01/16/2001 10:43
PM ---------------------------

Greg Whiting@ENRON
01/16/2001 10:26 PM
To: Jim Coffey/HOU/ECT@ECT
cc: Barbara N Gray/HOU/ECT@ECT, Brian Redmond/HOU/ECT@ECT, Steve HPL
Schneider/HOU/ECT@ECT, Tom Shelton/HOU/ECT@ECT, Patrick Wade/HOU/ECT@ECT,
Anne C Koehler/HOU/ECT@ECT, Georgeanne Hodges/HOU/ECT@ECT
Subject: Re: Taxes on sale of Stored Gas

All,

The huge tax hit relates to Cushion gas only. For working gas (non cushion),
the tax liability is normal course of business (ie Sales Price - Inventory
Cost). Due to the age of the cushion gas the TRRC is allowing us to only
deduct our original basis which was $0.33/mmbtu per our tax records. There
is a possiblity of reducing this slighty if the write-up of the cushion gas
occurred after Dec 1989, but we will have to find documentation of such and I
do not believe this will provide substantial savings. For our purposes we
are looking at being charged interest and penalites on the tax due from $2.90
- $0.33. This will be slightly less than the $1.1 million which was
calculated from the full value of $2.90, but not significantly less.

I return from Chicago tomorrow and should be back in by lunch. Call if you
have any questions.

Greg x35399

Jim Coffey@ECT
01/16/2001 05:18 PM
To: Barbara N Gray/HOU/ECT@ECT
cc: Brian Redmond/HOU/ECT@ECT, Steve HPL Schneider/HOU/ECT@ECT, Tom
Shelton/HOU/ECT@ECT, Patrick Wade/HOU/ECT@ECT, Anne C Koehler/HOU/ECT@ECT,
Greg Whiting/Corp/Enron@ENRON

Subject: Re: Taxes on sale of Stored Gas

Currently from what I understand the tax hit would be a little over $1million
and is accruing interest.

From: Barbara N Gray on 01/16/2001 01:54 PM
To: Brian Redmond/HOU/ECT@ECT
cc: Steve HPL Schneider/HOU/ECT@ECT, Tom Shelton/HOU/ECT@ECT, Patrick
Wade/HOU/ECT@ECT, Anne C Koehler/HOU/ECT@ECT, Jim Coffey/HOU/ECT@ECT
Subject: Taxes on sale of Stored Gas

Brian, I'm sure that you are aware of the disappointing result that appears
to be the outcome of the TXRRC Tax Audit...I think we need to converse about
the tax ramifications of the sale of the non-cushion gas to AEP and the
unwind from the Banks..........If the strict approach currently being
employed is applied to 1. the unwind (with the conveyance to LEASECO) and
also 2. the sale of this non-cushion gas by Leaseco to HPL, IT SEEMS TO ME
THAT ENRON WILL HAVE A HUGE TAX HIT. Maybe we can slightly change the
mechanics to avoid this result. Let me have your thoughts.

regards bng