Kim,

Thank you for your time on Wednesday. I enjoyed meeting you and appreciated the discussion regarding pipeline economics.

I was thinking about the capacity you sold in 2003 on an Index to Index basis. On the attached diagram, the boxes colored black represent my understanding of your current position (you are locked-in to $1.00/MMBtu for the Calif. Border Index minus San Juan Index but exposed to San Juan Basin gas prices for the fuel required to deliver 20,000 MMBtu/d to the Calif. Border). You can easily lock-in your cost of fuel gas as shown by the swap colored in red. I believe that you did this capacity trade when gas prices were higher, therefore you could fix your fuel cost at today's lower prices and earn a higher margin on your capacity sale than originally expected. 

The decision to unwind the Index to Index hedge that you did with ENA is a tougher call. The unwind would be accomplished by the swap colored blue. Which do you prefer: 1. $1.00/MMBtu or 2. $0.40 + (Calif. Border minus San Juan Indices) per MMBtu ? Unwinding at $0.60/MMBtu, you must believe that Calif. Border Index minus San Juan Index will be greater than $0.60/MMBtu. I am not very familar with those pricing points so I can not give an educated opinion.

Anyway, I hope that this is useful. Talk to you later.

Paul