RE: Sun Devil Pre-paid contracts

Is this deal still a go?

-----Original Message-----
From: Hyatt, Kevin
Sent: Thursday, December 06, 2001 9:16 AM
To: Guthrie, Robert
Subject: RE: Sun Devil Pre-paid contracts

that will work. thanks

-----Original Message-----
From: Guthrie, Robert
Sent: Wednesday, December 05, 2001 5:36 PM
To: Hyatt, Kevin
Subject: RE: Sun Devil Pre-paid contracts

I am working with some researchers from our group and should have an answer late tomorrow. Is that workable for you?

-----Original Message-----
From: Hyatt, Kevin
Sent: Tuesday, December 04, 2001 9:45 AM
To: Guthrie, Robert
Cc: Gadd, Eric; Junus, David; Dickerson, Steve V
Subject: Sun Devil Pre-paid contracts
Importance: High

Robert,
as we discussed yesterday, the Sun Devil project is a 400 mile, $911 million pipeline expansion on the Transwestern system. We plan to loop the existing San Juan lateral and mainline systems, plus build a new lateral from Flagstaff to Phoenix, AZ. The project also includes several compressor additions.

We are negotiating with several large gas-fired electric generators in the Phoenix area to take capacity on the new project. One of our current challenges is how to finance the project with the lowest cost of capital; one structure we are considering is a prepay. Ideally, the customer would prepay for a portion of his transport up front, once the project goes in service. All the prepaid contracts together would cover a majority of the initial construction cost ($911mm).

The question to you is:
1) if the customer prepays the transport contract, does TW have to pay the tax on the funds when they're received?
2) is there a way to structure around paying the tax in year one, maybe using some deferred tax liability basis?

If TW has to pay a tax on the funds, and we collect from the customer a gross-up for tax purposes, then my feeling is the pre-pay structure will be too expensive. Please let me know your thoughts at your earliest convenience.

thanks
Kevin Hyatt
x35559