Audrey D. Robertson
Transwestern Pipeline Company 
email address:  audrey.robertson@enron.com
(713) 853-5849
(713) 646-2551 Fax

 -----Original Message-----
From: 	Pavlou, Maria  
Sent:	Thursday, June 21, 2001 9:34 AM
To:	Robertson, Audrey
Subject:	FW: Negotiated Rates

Audrey, pls. forward this memo to the TW commercial team.  Thanks, Maria


I recently discussed above-maximum rate deals with Northern's commercial team and wanted to forward what I shared with them to you.  Pls. call me if you have any questions about this memo.  Thanks, Maria
 -----Original Message-----
From: 	Pavlou, Maria  
Sent:	Wednesday, June 13, 2001 3:01 PM
To:	Cappiello, Deborah
Cc:	Dornan, Dari; Kirk, Steve; Fossum, Drew; Miller, Mary Kay
Subject:	Negotiated Rates



Pursuant to our conversation yesterday, here are some guidelines for the Northern marketers to follow when doing above-maximum rate negotiated rate transactions.  

The Commission permits a pipeline to charge above-maximum rates under negotiated rate authority provided that the capacity also remains available at the maximum recourse rate.   In other words, we cannot unilaterally require a customer to purchase capacity at a rate above the max rate; however, customers may willingly choose to pay a negotiated rate (above max rates or below minimum rates).

Below are some FAQs and the appropriate response when negotiating rates with customers in an above-maximum rate environment.

1.	Is it better to use a fixed rate or an index/formula based rate?  It is better to use an index or formula based negotiated rate as opposed to a fixed rate, as the index or formula-based rates provide a reasonable basis as to why a customer would enter into a negotiated rate transaction exceeding max rates, e.g. to accommodate the customer's risk profile.  

2.	Who should propose the rate?  It is better for the customer to propose the rate.  You may ask questions like:   Have you seen the spread?   What do you think?  What can you give me for the subject capacity?  Will you split the upside?  If so, what is a fair split?  The goal here is to have the customer come up with the rate.  If the customer won't go there, it is never appropriate to bully, cajole, or use undue pressure to get an above-maximum rate deal.  Moreover, we can never imply or otherwise indicate that the capacity is unavailable if the customer does not pay a negotiated rate or above-maximum rate.    

3.	Do I have to offer the maximum rate or say this capacity is also available at the maximum rate?   Our capacity is always offered at the maximum tariff rate because that is the rate on file which the shipper sees when he/she looks at our tariff.    We don't have to expressly state the capacity is available at our maximum recourse rate, but if the customer requests to pay the maximum rate, no further conversations about paying a negotiated rate should take place.  In other words, we have to sell available capacity at the maximum rate once a shipper asks for that rate unless we are negotiating a longer term maximum rate deal for such capacity at the same time.    In such circumstances, please confer with regulatory and legal so that we can determine what action is appropriate to take given the specific facts.  

4. 	Can a shipper get a higher priority by paying more than the maximum rate?  No.  Shippers willing to pay more than the maximum recourse rate are considered to have paid the maximum recourse rate for capacity allocation and priority purposes.  A shipper willing to pay only the recourse rate cannot lose access to capacity merely because someone else is willing to pay a negotiated rate.  Where there are more requests for capacity than there is capacity available, the pipeline must allocate capacity among those shippers willing to pay either the negotiated rate or the maximum recourse rate on the allocation basis required by the tariff.


Given that customers have recorded phone lines, be careful what you say.  We cannot deny the availability of capacity at the recourse rate, nor can we mislead customers into believing that the maximum rate is unavailable for certain capacity for any reason.