Gallup answers

Here is the quick & dirty.

None of the Gallup contracts contain a shipper out if the facilities are not
placed in service by a certain date. The respective obligations of the
parties do not commence until the facilities are "tested and placed in
service." We notified our shippers by telephone yesterday that the
facilities were in service. The compressor has since been taken down because
of excessive vibration and an unusual whining noise of undetermined origin.
EE&CC does not know how long it will take to correct the problems; they do
not have enough information yet to even give an estimate. Based on our
experience with Hubbard, it could take months to correct the problem. Today,
we've been able to deliver all nominated gas simply because noms did not
exceed our existing capacity. Nominations are expected to exceed existing
capacity this week, in which case we will have to allocate.

Given the uncertainty involved, from a PR standpoint I believe it would be
best to tell the customers that because of unforeseen circumstances we are
not in service after all, that we apologize for the mistake and will do our
best to provide service on a daily or interruptible basis. When the
compressor is actually tested and really in service, we'll let them know.
The downside: we get no reservation charge at all. (estimated loss:
$25,000/month)
The upside: in the long run we probably save face with our customers.

From a short-term economic standpoint, the better choice appears to be not to
revoke our "in-service" announcement. When summer weather kicks in, we'll
probably have to allocate every day. On our EBB we will have to give some
reason for the allocation (or if we don't, shippers will demand an
explanation anyway). Shippers' rights to a reservation refund will be
triggered.
The downside: shippers will never trust us again. Also, we could be subject
to fraud or related causes of action for representing the compressor was "in
service" when we knew it was not.
The upside: on the off chance no one files a lawsuit and wins, we might at
least get to keep some of the reservation charges owed us, to the extent
deliveries don't fall below 75% of nominated quantities for a period of
longer than 75 days in months other than July and August this summer. (In
July and August, we don't get any reservation charge for amounts not
delivered). We just need to keep in mind that normally the pipeline runs
full in the summer months, and Gallup capacity was sold with that assumption
in mind.

Haven't had time to do a formal write-up; if you want me to turn this into a
memo for wider distribution, let me know. For now, I think it's important to
get a decision on one of the above options. The longer we wait to get
information to our shippers, the bigger our customer relations problem will
be.