Please make sure this discussion is incorporated into the Monthly Report

 -----Original Message-----
From: 	Fulton, Donna  
Sent:	Wednesday, August 29, 2001 10:37 AM
To:	Kean, Steven J.; Shapiro, Richard; Robertson, Linda; Steffes, James D.; Kingerski, Harry; Nicolay, Christi L.; Novosel, Sarah
Cc:	Alvarez, Ray; Briggs, Tom; Lawner, Leslie; Cantrell, Rebecca W.; Kaufman, Paul; Migden, Janine; Montovano, Steve; Ryall, Jean
Subject:	Meeting with Dan Larcamp/ Marketing Affiliate Rulemaking


Leslie Lawner, Becky Cantrell and I met with Dan Larcamp at FERC yesterday to discuss the marketing affiliate issue.  He agreed with the latest press reports that the upcoming rulemaking NOPR, expected to be voted out in September, would not make major structural changes to the industry.  The current document is up to the Commission level and the Commissioners are clearly considering the alternatives now.  Larcamp said he expected a broadening of the current market affiliate rules structure to include all corporate entities.  He did specifically mention that the Commission is not comfortable with the link between financial and physical transactions and the possibility for manipulation of market prices in one market (financial) to affect prices in the other market (physical).  He also expects the Commission to blend the gas and power rules, using the best practices of each.  Any NOPR that is issued will of course have comment dates to allow Enron and all industry participants to comment on any proposed rule changes.

Larcamp indicated that he did not think there were pervasive afilliate discrimination issues in the industry, but said that the Commission needed to act due to the political pressures they got from the Hill, etc.  The El Paso case is top on everyone's mind and is of special concern because it affects the California market, both gas and power. 

Larcamp indicated that he is just now learning what a "Pat Wood" Commission is going to want.  He indicated that Wood has closer ties to the producer community than either of the two former Chairmen.  He therefore expects  that the Commission will be responsive to that sector in taking a relook at the affiliate rules.  However, Larcamp did mention that the only meeting that he had previously had on the affiliate issue was with the INGAA group (Joe Hartsoe went with them).  It is not clear whether the producer community has lobbied this issue at the Commissioner level.

We discussed strategy with Dan, how to let the Commission feel more comfortable with the marketing affiliate issue.  He suggested that he had gained a lot by visiting the trading floors (including Enron's).  He thought the Commissioners and their immediate staffs would benefit from similar visits.  

We specifically raised the issue of market prices, and talked about tranportation costs not equalling basis differentials.  We stated that our marketers believed that the prices in the market were determined by market factors in the specific areas of delivery rather than basin costs plus transport costs.  Dan did indicate some agreement with this concept and thought that more education at the Commissioner level would be very worthwhile.

If you have any questions, call Leslie, Becky or me.