Duke

Lorraine, I've been studying the El Paso/Dynegy reservation reduction
mechanism (RRM). Basically the deal was that Dynegy's minimum-pay obligation
would be reduced by the amount of the fixed cost component of IT revenues
generated by El Paso's transportation of IT volumes above a historical
threshold. (The parties based the threshold on El Paso's monthly IT volumes
for the 12 months ended 9/30/97.) The volumes in excess of the threshold
were calculated and a ratio of the volumes in excess of the threshold to the
total volumes was determined; the ratio would then be applied to the fixed
cost component of all IT revenues and the resulting dollar value applied to
Dynegy's monthly reservation charge, to the extent Dynegy had not met its
minimum pay obligation for a particular month.

This provision of course met with heavy opposition; however, FERC allowed
it. FERC stated that while the RRM had anticompetitive effects because it
created a disincentive for El Paso to discount IT, it was not unduly
discriminatory. The "unduly discriminatory" conclusion was based on an
analysis on the potential effect on the Cal. gas transportation market -- the
Commission found that due to relatively weak market demand, neither Dynegy
nor El Paso appeared to have been able to influence prices because so much
firm capacity was available.

I assume Russ may be after something similar to the RRM. We would have to
file it as a negotiated rate but I feel fairly confident that we could get
FERC to accept it.

That's my 2 cents worth on this particular issue...I'll come down around 3:30
to chat with you more about the Duke (I have a conference call with MKM from
1:30 to 3:30, which is why I'm camped out on 47).