Gentlemen,

Herewith Enron's initial comments on the proposed MOU.

Paragraph 1
ANNGTC's FERC Form 2 filing says that they have received rate base approval for approx. $470 million of past investment (not including AFUDC).  It is unclear how the total cash investment of the withdrawn partners relates to the $470 million number in the Form 2. 

We acknowledge that releasing any and all potential claims against the ANNGTC Partnership is an important principle to adopt to secure commercial commitments from the ANS Producers.  In principle, we are prepared to release claims for the accrued AFUDC component but are not prepared to release claims for the $470 MM of past investment because regulators may allow a recovery mechanic, which could present future upsides to the Withdrawn Partners.  We thus propose to modify this principle to provide for the inclusion of the $470 MM, but specifically exclude the AFUDC component.  Ultimately, the toll for transport services will result through negotiations with the ANS Producers, and their concerns can be addressed by expressly excluding surcharges/other regulatory mechanics approved by the regulators for the initial investments.

Par. 1, footnote **
Each ANS Producer that joins will cause the Current and Rejoining Partners' interests to be reduced pro rata, irrespective of when the new partners join.  We should discuss limits on the rights of new partners to join, or limits on the dilution.  Section 5.2.1 of the partnership agreement sets out a mechanism that discounts the percentage interest acquired by a new partner depending on how long after initial formation that partner joined.

Paragraph 2a
We have no information supporting $10 MM of costs incurred by TCPL-USA and UAFC-Foothills for 2000 and 2001.  The language is ambiguous on what will happen to the "costs incurred by TCPL-USA and UAFC-Foothills prior to 2000."  How much money did they spend and are they offering to write it off?  Does our payment of our pro rata share of the $10 million permanently absolve us of responsibility for those costs or have they been buried in the accounts of the partnership somewhere?

Paragraph 2b
The idea of a success payment implies that an entirely new set of customers for the pipeline will be found and new contracts executed.  Enron believes it is inappropriate for TCPL-USA and UAFC-Foothills to receive a success payment.  

Paragraph 3
While we would like to preserve the potential ability of the Partnership to seek to include the entire balance of capital contributions plus AFUDC/interest in rate base, since that is almost US $4b, doing so would crater the project's economics.  Instead, preserving just the project's ability to include in rate base the $470 MM that FERC has already blessed may be a more reasonable amount and also have the benefit of prior FERC approval.  

Paragraph 4
A Rejoining Partner who subsequently withdraws should be allowed to recover its capital contributions without interest/AFUDC at some future date, preferably the first day of commercial operations.  New Percentage Interest will revert to all partners in proportion to their respective current percentage interests.

Paragraph 5
Enron would like to eliminate this principle.  It would be appropriate for change of control principles to be developed.

Paragraph 7
Please clarify the principles in which the Partnership Agreement will be amended in order to "modernize" provisions for the management of the ANNGTC Partnership.

Paragraph 8
Please explain what is intended.

Paragraph 10
Enron can not agree to the principles in a) and b).

Paragraph 11
William's ownership of NAPC needs to be discussed.  The size of ANNGTC is such that it should hire its own pipeline operating management and staff in Alaska, which we recommend.

Paragraph 14
We'd like to take this out of the MOU for the same reason we took it out of the confidentiality agreement.  

Balance of MOU
Ok.