Transwestern held its Transport Options Workshop on August 31. Commercial
and regulatory representatives of BP-Amoco, Burlington, Conoco, Coral,
Dynegy, Phillips and Reliant attended. After a brief overview of the
proposed filing, TW opened the floor for questions and comments. Here is a
summary of the comments.

Marketing affiliate concerns. BP's regulatory representative expressed
concern that TW's marketing affiliates would be able to use options to game
the system. In BP's example, since TW and ENA are both Enron companies, ENA
could purchase an "out of the money" call option essentially cost free, since
its affiliate (TW) would have the ability to buy the option back. Proceeds
from ENA's ability to then "move the market" through the establishment of the
long basis position would go directly to Enron's bottom line. BP suggested
that TW's marketing affiliates be banned from purchasing options, or that the
marketing affiliate be required to credit 100% of the option proceeds to
other shippers. Although BP admits that Transwestern's prior dealings with
ENA have not been suspect, BP fears that TW's filing will set a precedent for
other pipelines to offer a similar service. Since TW will be the first
pipeline to offer such services, BP wants TW's program to be as restricted as
possible. Dynegy echoed BP's concern regarding possible affiliate abuse, but
rather than shelve the program entirely, Dynegy reiterated an earlier
suggestion that Transwestern be required to credit back the difference
between the option fee paid by an affiliate and the next highest bidder, if
the affiliate's bid exceeds the next highest by a certain percentage.

TW's response was that while actual abuse of an options program by a
marketing affiliate may be a legitimate concern, owing to its unassailable
record in this area, TW should be entitled to a presumption that it has
complied and will continue to comply with Commission policy covering the sale
of capacity to marketing affiliates, and was not inclined to voluntarily
include any limitations on the options program. If BP and others have
serious concerns regarding the Commission's overall policy on marketing
affiliates, those issues should be raised in a separate proceeding that
applies to all interstate pipelines.

Right of first refusal. Burlington asked whether options would replace the
right of first refusal. TW's response was that ROFR will still be available
pursuant to the terms and conditions of our tariff.

Negotiated rate. BP's representative claimed that option contracts will
constitute a negotiated rate and that each deal will need to be filed as
such. TW did not respond to this or discuss it further. However, TW's
position at this point is that since the option fee is part of the
transportation rate, transportation deals that include the option amendment
will only be considered negotiated rate deals if the total rate including the
option fee exceeds the maximum transport rate.

Hoarding capacity. Using the recent large block sale of capacity on El Paso
as an example, several customers expressed concern that the options program
would make it easier for a shipper to hoard capacity. It was not clear why
some of the workshop participants thought that the sale of options would
create more opportunity for hoarding capacity than already exists. Perhaps
because the option fee is a lesser cost than the transport rate for the
underlying capacity, their perception was that options would simply make
hoarding cheaper and easier. TW acknowledged that the potential for
withholding capacity from the market is one reason for FERC's current policy
against reserving capacity for shippers. Although TW did not commit to
placing any limits on the either the quantity of capacity or options for
capacity that any one shipper may own, it is possible that FERC may require
TW to do so in a final order.

Our plan is to meet with PG&E and SoCalGas in California the week of
September 11 to go over details of the program, and to finalize the FERC
filing by mid-September.

From: Susan Scott 09/01/2000 11:31 AM

To: Jeffery Fawcett/ET&S/Enron@ENRON
cc:

Subject: Draft: Summary of TW Options Workshop

Jeff -- since most of Teddy's comments were over my head yesterday, I could
use your help on that part of the discussion.

***
Transwestern held its Transport Options Workshop on August 31. Commercial
and regulatory representatives of BP-Amoco, Burlington, Conoco, Coral,
Dynegy, Phillips and Reliant attended. After a brief overview of the
proposed TW Options filing, we opened the floor for questions and comments.
Here is a summary of the comments.

Marketing affiliate concerns. BP's regulatory representative expressed
concern that TW's marketing affiliates would be able to use options to game
the system. For example, since TW and ENA are both Enron companies, if ENA
buys a call option it is essentially a free option. ENA could buy a call out
of the money and we could buy it back from them, with the proceeds going to
Enron's bottom line. BP suggested that TW's marketing affiliates be banned
from purchasing options, or that the marketing affiliate be required to
credit the call money to other shippers. BP's concern is that TW's filing
will set a precedent for other pipelines to offer a similar service, so they
want TW's options program to be as restricted as possible. Dynegy reiterated
its suggestion that the marketing affiliate be required to credit back the
difference between the option fee paid by the affiliate and the next highest
bidder's bid, if the affiliate's bid exceeds the next highest bid by a
certain percentage.

Our response was that while actual abuse of an options program by a marketing
affiliate would be a concern, we feel that TW is entitled to a presumption
that it has complied and will continue to comply with the rules on sale of
capacity to marketing affiliates. At this point we are not inclined to
voluntarily include any limitations on the options program. If BP and others
have issues regarding Commission marketing affiliate policy in general, those
issues should be addressed in a different proceeding that pertain to all
interstate pipelines.

Right of first refusal. Burlington asked whether options would replace the
right of first refusal. Our response was that ROFR will still be available
pursuant to the terms and conditions of our tariff.

Negotiated rate. BP's representative claimed that options will constitute a
negotiated rate and that each deal will need to be filed as such. We did not
respond to this or discuss it further. However, TW's position at this point
is that since the option fee is part of the transportation rate, the deals
will only be negotiated rate deals if the total rate exceeds the maximum
rate.

Hoarding capacity. Several customers expressed concern that the options
program would make it easier for a shipper to hoard capacity. It was not
clear why they thought that options would create more opportunity for
hoarding than already exists. Their perception was that options would simply
make hoarding cheaper and easier. We acknowledged that the potential for
withholding capacity from the market is one reason for FERC's current policy
against reserving capacity for shippers. Although we did not commit to
placing any limits on the quantity of capacity for which a shipper may
purchase an option, it is possible that FERC may require us to do so.

Our plan is to meet with PG&E and SoCalGas in California to elicit their
comments, and finalize the FERC filing by mid-September.