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Enron Mail |
Steve and Dave,
As a follow up from our meeting on August 16, we all had the question about= what, if any, price risk we had on the fuel portion of the Index to Index = deals. Here are my thoughts... For purposes of this discussion, let's just talk about how the Dynegy, San = Juan to SoCal Needles firm transport for 35,000 MMBtu/d for Calendar 2003 c= ould impact our fuel risk. Dynegy will not be giving us fuel in-kind for t= his transaction. All fuel needed for scheduled volumes on this contract wi= ll have to be provided by TW. In a normal year TW over collects approxima= tely 25,000 MMBtu/d in fuel. Because we will now need some of this over co= llected amount to provide the fuel for the Dynegy deal, we actually have so= mething less than the 25,000 MMBtu/d for the total 2003 fuel over collectio= n. To make the math easy to follow for purposes of discussion, let's assum= e after all of the Index to Index deals for 2003, we will only have 20,000 = MMBtu/d of over collected fuel on the system. We will need the remaining 5= ,000 MMBtu/d as fuel for the Index to Index deals. Let's also assume that = we have hedged or plan to hedge (by means of the whole calendar year, seaso= nally or monthly) the 20,000 MMBtu/d of 2003 over collected fuel. The rema= ining 5,000 MMBtu/d of over collected unhedged fuel is what will be used to= provide the fuel for the Dynegy deal. =20 It is my thought that the price risk question surrounds the 5,000 MMBtu/d o= f the remaining over collected fuel that is not hedged. On any day where = Dynegy would schedule the full 35,000 MMBtu/d to flow, the fuel actually bu= rned on that day for Dynegy would have the same value as all other shippers= who provided in-kind fuel on that same day. The other shipper's in-kind f= uel (I'm referring to the 5,000 MMBtu/d that is not hedged) is what is actu= ally used to provide fuel for Dynegy. On this particular day, we do not ha= ve additional adverse price risk. However, on any day that Dynegy does not= have the full 35,000 MMBtu/d scheduled to flow, we have an opportunity los= s on the value of this fuel. If Dynegy does not flow all or any volumes on= their contract on any given day, there is no fuel burned. This means that= we now have extra gas, that was not previously hedged, in the pipe provide= d by the other in-kind shippers that we do not need for Dynegy on this part= icular day. Now we are subject to selling this extra gas at current cash p= rices verses having the ability to hedge this volume ahead of time at a pri= ce that we felt meet our fuel hedging strategy, thus creating an opportunit= y loss. =20 Would you agree that our risk is when Dynegy does not flow? Would you agre= e that there is no additional price risk when Dynegy does flow? =20 Thanks, Kim.
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