tw expansion - - - - - - - - - - - - - - - - - - - - - - forwarded by lorraine lindberg / et & s / enron on 02 / 15 / 2001 08 : 01 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
drew fossum
02 / 14 / 2001 04 : 38 pm
to : susan scott / et & s / enron @ enron , sstojic @ gbmdc . com , mary kay miller / et & s / enron @ enron , keith petersen / enron @ enronxgate
cc : shelley corman / enron @ enronxgate , maria pavlou / enron @ enronxgate , steven harris / et & s / enron @ enron , jeffery fawcett / et & s / enron @ enron , kevin hyatt / et & s / enron @ enron , lorraine lindberg / et & s / enron @ enron
subject : tw expansion
there were several questions left for legal / regulatory to work on at the close of our meeting today . i ' ll try to restate them , and add my initial thoughts , so we can all be sure to focus on the correct problems .
q 1 . can tw use " negotiated rate " agreements for its new 150 mm / d expansion ?
a . yes . independence , guardian , and other new pipeline projects were certificated on the basis of negotiated rate contracts . the only restriction is that we need to always offer cost - based recourse rate service as an alternative to negotiated rates . we hope to use negotiated rate agreements for the entire 150 mm of capacity , but we won ' t know until the contracts are executed how much of it will be negotiated rate contracts and how much of it will be under recourse rate contracts . i guess that means that in the cert . app . , we just tell the commission that we will be 100 % at risk and that given the huge interest in the open season , we have no doubts about our ability to sell the full 150 . we should also tell the commission we expect to sell the capacity using negotiated rate contracts or recourse rate contracts or a combination of both .
q 2 . can we give prospective customers a " cafeteria style " menu of options ( to steal jeff ' s term ) , like the following :
1 . 5 yr . neg . rate deal at a locked in $ . 60 plus fuel and surcharges ( or whatever number we decide on )
2 . 10 y . neg . rate deal at a locked in $ . 45 plus fuel and surcharges
3 . 15 yr . neg rate deal at a locked in $ . 35 blah blah
4 . 15 yr cost based recourse rate plus fuel and surcharges ( importantly this option is not locked in and will float with tw ' s actual rate levels and fuel retainage percentages )
a . i think the answer here is " yes . " whatever options we come up with for 1 , 2 , and 3 , we will always have to offer 4 as well . susan and steve stojic : please confirm that we have the right to define specific negotiated rate options and stick to them . otherwise , this negotiated rate approach could get completely unstructured such that we end up with some guys taking our specific options and other guys custom tailoring weird variations ( like a 7 yr , 231 day contract at $ . 51764 , for example ) . i ' m not sure that would be a bad thing , but we need to think about it . we need to be sure we can tell a customer " no " and make it stick if he tries to mix and match by asking for the 5 yr term and the $ . 35 rate , for example . i think we can lay out options of our choosing and then enforce a " no substitutions " policy ( this is sticking with the " cafeteria " theme ) but we need to be sure .
q . 3 . if we can use the " cafeteria options " approach , how much flexibility do we have in structuring the options ?
a : this one is hard . we need to be sure that the price and term we choose to offer for options 1 - 3 is solely within our discretion . we don ' t want to be second guessed by ferc as to whether we should have offered option 1 at $ . 58 instead of $ . 60 . susan and steve : if you guys confirm that we have discretion in how to structure our negotiated rate options , does that mean we can slant the economics of the negotiated rate options so they are a better deal than the recourse option ( for most shippers ) ? i . e . , could we deliberately incent shippers to sign on for the short term deals - - i . e . , by offering options 1 - 3 at $ . 55 , $ . 45 and $ . 40 instead of the $ . 60 , $ . 45 , and $ . 35 shown above . i suspect that is what guardian and the other pipes did to obtain 100 % subscription under neg . rate deals .
q . 4 . how do we allocate capacity to customers if demand exceeds supply ? ? ?
a . ideally , we ' d be able to allocate the 150 to the guys who want to buy it the way we ' d prefer to sell it . under the above example , assuming stan , danny and steve decide short term deals are better , what if we get 100 mm / d of offers on each of the 4 rate / term options described above . that ' s 400 mm / d of demand for a 150 mm / d project . can we sell 100 to the guys who want option 1 ( $ . 60 / 5 yrs ) and the remaining 50 to the 10 yr / $ . 45 guys ? that really hoses the recourse bidders . do we have to cover the recourse demand first and then allocate the remaining capacity pro rata to everyone else ? pro rata to everyone ? under the rule that negotiated rate bids have to be deemed to be at max rate for purposes of allocation , pro rata to everyone may be the right answer . or at least its the answer until we ' ve filled the recourse rate guys ' orders , then we can give the remaining capacity to the neg . rate guys whose bids we value most highly ( using some objective nondiscriminatory calculation of course ) . ugh .
susan and steve - - please take a crack at questions 2 - 4 . i think 1 is answered already . i haven ' t done any research yet , so maybe these questions are easier than they currently seem to me . get me and mkm on the phone at your convenience to discuss . we ' ve gotta move quick so the marketers can get out and sell this stuff . df
tw expansion
- - - - - - - - - - - - - - - - - - - - - - forwarded by lorraine lindberg / et & s / enron on 02 / 15 / 2001 08 : 01 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
drew fossum
02 / 14 / 2001 04 : 38 pm
to : susan scott / et & s / enron @ enron , sstojic @ gbmdc . com , mary kay miller / et & s / enron @ enron , keith petersen / enron @ enronxgate
cc : shelley corman / enron @ enronxgate , maria pavlou / enron @ enronxgate , steven harris / et & s / enron @ enron , jeffery fawcett / et & s / enron @ enron , kevin hyatt / et & s / enron @ enron , lorraine lindberg / et & s / enron @ enron
subject : tw expansion
there were several questions left for legal / regulatory to work on at the close of our meeting today . i ' ll try to restate them , and add my initial thoughts , so we can all be sure to focus on the correct problems .
q 1 . can tw use " negotiated rate " agreements for its new 150 mm / d expansion ?
a . yes . independence , guardian , and other new pipeline projects were certificated on the basis of negotiated rate contracts . the only restriction is that we need to always offer cost - based recourse rate service as an alternative to negotiated rates . we hope to use negotiated rate agreements for the entire 150 mm of capacity , but we won ' t know until the contracts are executed how much of it will be negotiated rate contracts and how much of it will be under recourse rate contracts . i guess that means that in the cert . app . , we just tell the commission that we will be 100 % at risk and that given the huge interest in the open season , we have no doubts about our ability to sell the full 150 . we should also tell the commission we expect to sell the capacity using negotiated rate contracts or recourse rate contracts or a combination of both .
q 2 . can we give prospective customers a " cafeteria style " menu of options ( to steal jeff ' s term ) , like the following :
1 . 5 yr . neg . rate deal at a locked in $ . 60 plus fuel and surcharges ( or whatever number we decide on )
2 . 10 y . neg . rate deal at a locked in $ . 45 plus fuel and surcharges
3 . 15 yr . neg rate deal at a locked in $ . 35 blah blah
4 . 15 yr cost based recourse rate plus fuel and surcharges ( importantly this option is not locked in and will float with tw ' s actual rate levels and fuel retainage percentages )
a . i think the answer here is " yes . " whatever options we come up with for 1 , 2 , and 3 , we will always have to offer 4 as well . susan and steve stojic : please confirm that we have the right to define specific negotiated rate options and stick to them . otherwise , this negotiated rate approach could get completely unstructured such that we end up with some guys taking our specific options and other guys custom tailoring weird variations ( like a 7 yr , 231 day contract at $ . 51764 , for example ) . i ' m not sure that would be a bad thing , but we need to think about it . we need to be sure we can tell a customer " no " and make it stick if he tries to mix and match by asking for the 5 yr term and the $ . 35 rate , for example . i think we can lay out options of our choosing and then enforce a " no substitutions " policy ( this is sticking with the " cafeteria " theme ) but we need to be sure .
q . 3 . if we can use the " cafeteria options " approach , how much flexibility do we have in structuring the options ?
a : this one is hard . we need to be sure that the price and term we choose to offer for options 1 - 3 is solely within our discretion . we don ' t want to be second guessed by ferc as to whether we should have offered option 1 at $ . 58 instead of $ . 60 . susan and steve : if you guys confirm that we have discretion in how to structure our negotiated rate options , does that mean we can slant the economics of the negotiated rate options so they are a better deal than the recourse option ( for most shippers ) ? i . e . , could we deliberately incent shippers to sign on for the short term deals - - i . e . , by offering options 1 - 3 at $ . 55 , $ . 45 and $ . 40 instead of the $ . 60 , $ . 45 , and $ . 35 shown above . i suspect that is what guardian and the other pipes did to obtain 100 % subscription under neg . rate deals .
q . 4 . how do we allocate capacity to customers if demand exceeds supply ? ? ?
a . ideally , we ' d be able to allocate the 150 to the guys who want to buy it the way we ' d prefer to sell it . under the above example , assuming stan , danny and steve decide short term deals are better , what if we get 100 mm / d of offers on each of the 4 rate / term options described above . that ' s 400 mm / d of demand for a 150 mm / d project . can we sell 100 to the guys who want option 1 ( $ . 60 / 5 yrs ) and the remaining 50 to the 10 yr / $ . 45 guys ? that really hoses the recourse bidders . do we have to cover the recourse demand first and then allocate the remaining capacity pro rata to everyone else ? pro rata to everyone ? under the rule that negotiated rate bids have to be deemed to be at max rate for purposes of allocation , pro rata to everyone may be the right answer . or at least its the answer until we ' ve filled the recourse rate guys ' orders , then we can give the remaining capacity to the neg . rate guys whose bids we value most highly ( using some objective nondiscriminatory calculation of course ) . ugh .
susan and steve - - please take a crack at questions 2 - 4 . i think 1 is answered already . i haven ' t done any research yet , so maybe these questions are easier than they currently seem to me . get me and mkm on the phone at your convenience to discuss . we ' ve gotta move quick so the marketers can get out and sell this stuff . df