---------------------- Forwarded by Drew Fossum/ET&S/Enron on 04/19/2000 
09:47 PM ---------------------------


Drew Fossum
04/19/2000 09:45 PM
To: Mary Kay Miller/ET&S/Enron@ENRON, Glen Hass/ET&S/Enron@ENRON, Mary 
Darveaux/ET&S/Enron@ENRON, Maria Pavlou/ET&S/Enron@ENRON, Susan 
Scott/ET&S/Enron@ENRON
cc: Steve Harris/HOU/ECT@ECT, Kevin Hyatt/ET&S/Enron@Enron, Lorraine 
Lindberg/ET&S/Enron@ENRON, James Centilli/ET&S/Enron@ENRON 

Subject: Pueblo

Here's a weird one.  Could we structure the Pueblo pipeline project with the 
following characteristics: 
1.  The lateral from TW's mainline to Albeq. is wholly TW owned (i.e., no 
joint venture with Langley);
2.  The lateral  is 100% debt financed (i.e., it is expected to cost about 
$20 million, which TW would borrow in a project financing, secured by the 
revenue stream under the firm contract for service on the new lateral);
3.  TW files for a 7(c) certificate, seeking an incremental rate for service 
on the new lateral;  Any service on the TW mainline will be subject to TW's 
existing rates;
4.  TW designs the max. incremental rate based on normal cap. structure, 
deprec., O&M, allocations, etc.
5.  TW has one contract for 40,000/day, for 10 years for service on the 
lateral;
6.   The rate for that one customer is a negotiated rate that is based on an 
alternative ratemaking study under which the customer pays enough $$ to cover 
debt service on the project financing, incremental deprec., O&M, A&G, etc.  
No allocated costs or any other costs related to TW's preexisting facilities 
are included in the negotiated rate.  
7.  TW is entirely at risk for cost recovery, but the one contract covers all 
actual costs, except return and taxes on the new line. Basically, the one 
contract locks in a floor of break even cash flow.  If TW fails to lock up 
any additional customers there will never be any "taxable income" for the 
line since debt servicing costs and other expenses completely eat up the 
revenue under the one big contract.  Therefore, there will never be any 
return or taxes related to the new line, unless TW locks up additional 
contracts.  
8.  Any additional contracts TW locks up will generate TW's upside for the 
project. 

The question is can we do this?  Will FERC let us build it?  Will FERC let us 
oversize the pipeline significantly larger than the 40,000/day that the one 
big firm customer needs?   I'm sure I've left out important facts, so I'll 
try to grab you tomorrow to discuss.  

The overall objective is to create the "leanest" possible initial cost 
structure for the pipeline, and therefore for the Langley power plant, 
consistent with TW being able to get the new pipeline built.  I.e., lets get 
the pipe built and help the power plant get to a cheap enough elec. rate that 
they can get their big contract with the govt.  and economically sell surplus 
off-peak power onto the grid.  Even if the new incremental rate for service 
on the lateral is a break even rate, TW's upside comes from incremental 
throughput from the Permian to the new lateral, at a rate of $___/MMBtu, and 
from any additional bypass load we can pick up from PNM (it looks like TW's 
rates off of the new line will beat PNM's industrial rates).   

I appreciate your input on this.  DF