FW: Sun Devil/Sonoran Pipeline 
Sorry, Kevin.  I thought I had copied you on this.

 -----Original Message-----
From: 	Dickerson, Steve V  
Sent:	Friday, November 16, 2001 1:15 PM
To:	Kilmer III, Robert
Subject:	Sun Devil/Sonoran Pipeline
Importance:	High

Rob,

I need your expert advice before conducting further negotiations with Kinder Morgan (KM).  As you may be aware, the Sun Devil project parallels the Transwestern (TW) system to Flagstaff, AZ and will then turn south and parallel a El Paso lateral into Phoenix.  KM has made a proposal to provide services to TW under a "lease transaction" for that portion of the pipeline from San Juan, NM to Flagstaff.  The KM proposal offers two obvious advantages: i)  It would allow TW to lower its capital cost to construct the total system, and ii) It would lower the fuel allocated to Sun Devil by TW. There also may be ways to further reduce the tariff proposed to Sun Devil by KM, if TW can provide some of the operations and administration services for KM.

We have been negotiating with Shippers for a fee that would yield a minimum rate of return based upon our proposal to build and own the entire system.  However, the KM proposal could allow us an opportunity to save on fuel, operating, administrative and capital costs, thus possibly achieving better project returns, if TW is able to capture revenues from these savings. We would like to explore assessing the Sun Devil Shippers an allocated fuel rate and other fees commensurate with TW's current rate structure.  Will FERC regulations permit us to do these things?  Should the Sun Devil Pipeline be part of TW or should it be under some other corporate structure to capture revenues?  Does the lease transaction give TW an accounting or tax benefit?

I have attached the KM proposal for your perusal.  Please keep it confidential.

Thank you for your help.

Steve

 

