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Attached is Shelley Corman's response to Jeff Dasovich, based on
conversations with Drew and me. Accordingly, I would advise you not to participate in the conference call Jeff is setting up for tomorrow. Questions -- give me a call. ---------------------- Forwarded by Susan Scott/ET&S/Enron on 01/04/2000 12:52 PM --------------------------- Shelley Corman 01/04/2000 12:50 PM To: Jeff Dasovich/SFO/EES@EES cc: Susan Scott/ET&S/Enron@ENRON Subject: Re: The El Paso Controversy Continues Jeff, From the pipeline group's perspective, this transaction is a commercial matter between El Paso and ENA. Accordingly, the gas pipeline group does not believe that it is appropriate to participate in the development of ENA's response. I do understand that the referenced article and certain of the protests make factual allegations about Transwestern's available capacity to California. Susan Scott or I can certainly provide corrected information from Transwestern's available capacity postings. Jeff Dasovich @ EES on 01/04/2000 11:23:33 AM To: Richard Shapiro/HOU/EES@EES, Paul Kaufman@EES, Julie A Gomez@ECT, Susan J Mara/SFO/EES@EES, Mona L Petrochko/SFO/EES@EES, Sandra McCubbin/SFO/EES@EES, Leslie Lawner/HOU/EES@EES, Margaret Carson/Corp/Enron@Enron, Chris H Foster@ECT, Kevin Simmons@ECT, Dave Parquet@ENRON_DEVELOPMENT, Robert Shiring/HOU/ECT@ECT, Joe Hartsoe/Corp/Enron@Enron, James D Steffes/HOU/EES@EES, Harry Kingerski/HOU/EES@EES, Patrick Keene/HOU/EES@EES, Rebecca W Cantrell@ECT, Kevin Hyatt@ECT, Susan Scott/ET&S/Enron@Enron, Jeffery Fawcett/ET&S/Enron@Enron, Shelley Corman/ET&S/Enron@Enron cc: Subject: Re: The El Paso Controversy Continues i would like to set up a conference call for tomorrow, jan. 5 at 3:30 CST to discuss the ena/el paso deal. please let me know if 1) you would like to be on the call, and 2) you are available at that time. thanks, jeff Jeff Dasovich on 01/02/2000 07:19:57 PM To: Richard Shapiro/HOU/EES@EES, Paul Kaufman@EES, Julie A Gomez@ECT, Susan J Mara/SFO/EES@EES, Mona L Petrochko/SFO/EES@EES, Sandra McCubbin/SFO/EES@EES, Leslie Lawner/HOU/EES@EES, Margaret Carson/Corp/Enron@Enron, Chris H Foster@ECT, Kevin Simmons@ECT, Dave Parquet@ENRON_DEVELOPMENT, Robert Shiring/HOU/ECT@ECT, Joe Hartsoe/Corp/Enron@Enron, James D Steffes/HOU/EES@EES, Harry Kingerski/HOU/EES@EES, Patrick Keene/HOU/EES@EES cc: Subject: Re: The El Paso Controversy Continues please read be story from trade press below. i have not included et&s folks on this note because i'm uncertain regarding the rules with respect to communication among business units in these sorts of matters. if it's acceptable to include tw in the notes and in conversations, that would be my preference. rick, is it your view that tw can or cannot be included? i believe i passed along word of the ena/el paso deal when it hit the press week before last. the press reported both the amount of capacity and the price for which ena bought it from el paso. to summarize: ena purchased 1.25 bcf per day for one year starting jan 1, 2000. ena paid $38 million, which gives an average price of $.0831 per mmbtu. (by contrast, williams bought about 0.1 bcf/day at an average rate of $.207.) el paso released this information via a a press release without any prior approval from ena. julie, please don't hesitate to fill any holes or (unintended) innaccuracies. the situation is complicated by the fact that california is currently in the midst of intense negotiations over restructuring the state's gas industry. the negotiations have been going on for about 8 months and have been very contentious. socal has teamed with indicated producers, california manufacturers association, and muni generators from southern california to push a very "go slow" approach that is (surprise) quite friendly to larger users. enron is teamed with western hub storage, wild goose storage, calpine, southern california edison, green mountain power, the city of vernon, and spurr/remac (provides services to california's k-12 school system) under an alliance called "california alliance for competition" (snappy, i know). the cac proposal is pushing, among other things, a single, state-wide market for transport, storage and balancing, including tradeable rights in a secondary market. indicated producers has been aggressive and hostile toward marketers--as has cma--throughout the negotiations. ip's bile has not been reserved solely for enron, however. one outcome of the negotiations has been the suit ip launched against el paso at ferc regarding el paso's nom process. (i believe ena filed in support of the suit.) el paso is losing that one and will likely change its nom process sooner rather than later. i think it's important to have a quick call to develop a clear and consistent message on the ena deal and coordinate what we're saying about that deal with the other gas issues on the table. i'm assuming that if there's anything we can do to keep harvey morris (and california) from mucking up the deal, the better. i know harvey well. i'm not sure, given his quotes, there's much "educating" to be done, but may make sense to meet with him, nonetheless. more important, indicated producers is the real--and biggest--problem. let me know if you folks think there'd be value in briefly discussing the issue. best, jeff Kevin Hyatt@ENRON 12/30/99 10:51 AM To: Jeff Dasovich/SFO/EES@EES, Joseph Alamo/SFO/EES@EES cc: Subject: The El Paso Controversy Continues CPUC attorney Harvey Morris obviously has NO CLUE on how the transportation business works. ---------------------- Forwarded by Kevin Hyatt/ET&S/Enron on 12/30/99 12:49 PM --------------------------- ET & S Business Intelligence From: Lorna Brennan on 12/30/99 09:18 AM To: Bill Cordes/ET&S/Enron@ENRON, Julie McCoy/ET&S/Enron@ENRON, Lou Geiler/ET&S/Enron@ENRON, Tim Aron/ET&S/Enron@ENRON, Steve Klimesh/ET&S/Enron@ENRON, Sarabeth Smith/ET&S/Enron@ENRON, Gary Sova/ET&S/Enron@ENRON, Rob Wilson/ET&S/Enron@ENRON, Lon Stanton/ET&S/Enron@Enron, Margaret Carson/Corp/Enron@ENRON, Rita Hartfield/Corp/Enron@ENRON, Rockey Storie/ET&S/Enron@ENRON, Stephanie Miller/ET&S/Enron@ENRON, Kent Miller/ET&S/Enron@ENRON, John Dushinske/ET&S/Enron@ENRON, Dave Neubauer/ET&S/Enron@ENRON, Michael Bodnar/ET&S/Enron@ENRON, Joni Bollinger/ET&S/Enron@ENRON, David Badura/ET&S/Enron@Enron, Janet Bowers/ET&S/Enron@ENRON, Craig Buehler/ET&S/Enron@ENRON, Bob Burleson/ET&S/Enron@ENRON, Allen Cohrs/ET&S/Enron@ENRON, John Fiscus/ET&S/Enron@ENRON, Bret Fritch/ET&S/Enron@Enron, Steve Gilbert/ET&S/Enron@ENRON, Morgan Gottsponer/ET&S/Enron@ENRON, Brenda Harris/ET&S/Enron@ENRON, James Harvey/ET&S/Enron@ENRON, Stephen Herber/ET&S/Enron@ENRON, Dana Jones/ET&S/Enron@ENRON, Jane Joyce/ET&S/Enron@ENRON, Stephanie Korbelik/ET&S/Enron@ENRON, Therese Lohman/ET&S/Enron@ENRON, Bill Mangels/ET&S/Enron@ENRON, Penny McCarran/ET&S/Enron@ENRON, Vernon Mercaldo/ET&S/Enron@ENRON, Larry Pavlou/ET&S/Enron@ENRON, Eileen Peebles/ET&S/Enron@ENRON, Maria Perales/ET&S/Enron@ENRON, Tony Perry/ET&S/Enron@Enron, Loren Penkava/ET&S/Enron@ENRON, Ken Powers/ET&S/Enron@ENRON, Joan Schwieger/ET&S/Enron@ENRON, Chris Sebesta/ET&S/Enron@ENRON, Frank Semin/ET&S/Enron@Enron, Neal Shaw/ET&S/Enron@ENRON, Larry Swett/ET&S/Enron@ENRON, Kay Threet/ET&S/Enron@ENRON, Mike Ullom/ET&S/Enron@ENRON, Lisa Valley/ET&S/Enron@Enron, Chuck Wilkinson/ET&S/Enron@ENRON, Jim Wiltfong/ET&S/Enron@ENRON, Jo Williams/ET&S/Enron@ENRON, Karen Lagerstrom/ET&S/Enron@Enron, Ray Stelly/ET&S/Enron@ENRON, Bob Stevens/ET&S/Enron@Enron, Sue M Neville/ET&S/Enron@ENRON, Mike Barry/ET&S/Enron@ENRON, Miriam Martinez/ET&S/Enron@ENRON, Martha Janousek/ET&S/Enron@ENRON, Kimberly Watson/ET&S/Enron@ENRON, Don Powell/ET&S/Enron@ENRON, Melinda Tosoni/ET&S/Enron@ENRON, Steve Weller/ET&S/Enron@ENRON, Michael G Stage/ET&S/Enron@ENRON, Tim Johanson/ET&S/Enron@ENRON, Mike McGowan/ET&S/Enron@ENRON, Steven Harris/ET&S/Enron@ENRON, Lindy Donoho/ET&S/Enron@ENRON, Jeffery Fawcett/ET&S/Enron@ENRON, Lorraine Lindberg/ET&S/Enron@ENRON, Kevin Hyatt/ET&S/Enron@Enron, Christine Stokes/ET&S/Enron@ENRON, Drew Fossum/ET&S/Enron@ENRON, Lee Huber/ET&S/Enron@ENRON, Maria Pavlou/ET&S/Enron@ENRON, Mary Kay Miller/ET&S/Enron@ENRON, Glen Hass/ET&S/Enron@ENRON, Donna Fulton/Corp/Enron@ENRON cc: Subject: The El Paso Controversy Continues Enron-El Paso Deal Could Mute Competition to CA Fearing an end to pipeline competition in California, the state's regulators and Indicated Shippers have called on FERC to summarily reject the three transportation agreements by which Enron North America Corp. has contracted for 1.25 Bcf/d of unsubscribed firm capacity on El Paso Natural Gas. Approval of these agreements would give Enron Corp., parent of Transwestern Pipeline and Enron North America, control over all the available transportation capacity to the southern California border, warned Harvey Morris, principal attorney for the California Public Utilities Commission (CPUC), which plans to submit its protest today. Between the two pipelines, he estimated Enron will control 2.34 Bcf/d of firm capacity from the San Juan and Permian basins to California. For Morris, Enron North America's contracting of the El Paso capacity represents a worse threat to the pipeline's other shippers than Dynegy Marketing and Trade, who has held the capacity for past two years and whose contract expires Dec. 31. "At least then there was some Transwestern competition to the Dynegy situation. Now it's Enron, the owner of Transwestern, who's stepping into Dynegy's shoes." But "what's even worse," he told NGI, is the revenue-sharing provision in the contracts. It stipulates that "after Enron makes $35 million off of these contracts, it has to share the proceeds with El Paso for 25% of anything beyond $35 million. So effectively, Enron and El Paso have become partners in how high they can jack up the transportation rate differential between the California border and the Southwest producing basins." The two pipeline companies "that have for decades competed with each other in carrying Southwest supplies to California are now partners. We think that's anticompetitive, and there's no way FERC should approve it," Morris said. He recalled the basis differential between the San Juan Basin spot price and the California border shot up by 17% during 1998, the first year during which Dynegy controlled the El Paso capacity into California. This situation could worsen under Enron, he believes. "At first blush the El Paso-Enron contracts [do] not appear to contain the same anticompetitive features of the El Paso-Dynegy contracts," Indicated Shippers noted, but a "closer review and analysis" reveals the anticompetitive effects of the revenue-sharing provision (RSP) in El Paso-Enron contracts "are not only similar" to those of the hotly contested reservation-reduction mechanism (RRM) in the El Paso-Dynegy case, "but are increased......due to the fact that the contracts are with a marketing affiliate of El Paso's primary interstate pipeline competitor," Transwestern. Both the RRM and RSP "operate to provide a disincentive for El Paso and its competitors to compete against each other, or to take any other action that will act to drive down the basis differential that defines the market value of the capacity," Indicated Shippers told FERC in a protest filed on Wednesday [RP97-287-041]. The group includes producers Amoco Production, Burlington Resources Oil and Gas, Marathon Oil, and Phillips Petroleum, and two marketers - Amoco Energy Trading and Phillips Gas Marketing. FERC "should reject the tariff filing immediately. The Commission erred in allowing the El Paso-Dynegy contracts to remain intact for their two-year term after finding that the contracts were anticompetitive. This issue is pending in the [D.C. Court of Appeals]. That same error should not be repeated here," the producers and marketers said. The CPUC's attempt to block the Enron-El Paso contracts at the outset is a little bit unusual for the agency, Morris said, but it learned its lesson following Dynegy. "When the Dynegy situation first hit, we asked for FERC to investigate the matter. We thought FERC did a very inadequate job then.....This time around we're asking for FERC to summarily reject it. It's hard for an agency like ours to take such a strong stand right at the beginning, but we've learned too much from two years of suffering under the Dynegy situation. And this is even worse." In the event the Commission should reject California's request, the CPUC has asked that an "anti-hoarding condition" be included in the contracts, which would require Enron to release unused capacity into the short-term market at a price higher than what it's paying El Paso for the capacity. "They must make a little profit," Morris noted. "We're confident Enron can't use the entire 1.2 Bcf/d of capacity.....so there's going to be unused capacity." The agency also wants FERC to clarify that the primary delivery point for the Block II portion of the capacity (579MMcf/d) is PG&E-Topock in keeping with the terms of the 1996 settlement between El Paso and its customers. Morris said he agreed fully with Amoco, Burlington Resources and Southern California Gas (SoCalGas), which accused El Paso of violating the 1996 agreement by allowing Dynegy to use SoCalGas-Topock as a primary delivery point for the Block II capacity last summer. They contend the alleged violation is included in the Enron contracts. He also noted the CPUC will challenge the ability of Enron to call back Block II capacity after it already had been recalled by El Paso shippers to serve Pacific Gas and Electric (PG&E) customers in northern California. Last July, FERC granted Dynegy the right to do this under its contracts with El Paso. But Morris contends the decision violates the 1996 settlement under which PG&E paid $54 million to preserve the right of the pipeline's shippers to recall the Block II capacity to serve end-users in its service territory. The CPUC also intends to challenge the Commission's decision that would enable Enron to "just sit on the capacity," thereby withholding idle Block II capacity from the market. Indicated Shippers also contend the Enron contracts violate the Block II capacity provisions of the 1996 rate case, as well as "exacerbate" the primary firm delivery point capacity-allocation issues that are pending before FERC now. The CPUC accused El Paso of "deliberately" filing the Enron contracts at FERC just before the holidays to avoid controversy. The pipeline "is trying to sneak one of the most controversial things ever past FERC right before Christmas so that protests would be minimized," said Morris. "They did this with the Dynegy contracts two years ago. They have a pattern of filing right at the last minute, making it harder for people to protest and harder for FERC to stop it from going into effect." ,Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.
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