---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 02/04/2000 
06:14 PM ---------------------------


Kimberly Watson@ENRON
02/04/2000 04:12 PM
To: Vince J Kaminski/HOU/ECT@ECT
cc:  
Subject: El Paso / ENA Deal Completely Terminated Now

I'm sure you have already heard this, but here is a summary.  Kim.
---------------------- Forwarded by Kimberly Watson/ET&S/Enron on 02/04/2000 
04:11 PM ---------------------------
ET & S Business Intelligence
From: Lorna Brennan on 02/04/2000 02:30 PM
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cc:  
Subject: El Paso / ENA Deal Completely Terminated Now

El Paso, Enron Terminate $38 Million Mega-Deal

     In a stunning announcement late yesterday, El Paso Natural Gas said it 
had reached a
     "mutual agreement" with Enron North America Corp. to terminate the $38 
million
     negotiated mega-deal for 1.2 Bcf/d of capacity that the marketer had 
entered into in
     December. The negotiated arrangement covers three separate capacity 
agreements. 

     The decision to release Enron from the three capacity agreements was 
somewhat
     puzzling, given that Enron last week had asked to be let out of only one 
contract - the
     famed Block II agreement (614 MMcf/d) - due to the restrictions that 
FERC had
     placed on the delivery rights of the capacity. In a Jan. 27 letter, 
Enron notified El Paso
     of its intent to exit the Block II contract, but the letter didn't 
indicate that it wanted to
     terminate the Blocks I and III contracts. See Daily GPI, Feb. 3) 

     "They asked for it [to be released] and we agreed to it. It was a mutual 
agreement,"
     said El Paso spokesman Mel Scott. The capacity agreements will be 
terminated on Jan.
     31. Afterward, El Paso said it will hold open season from Feb. 7 to Feb. 
14 for the
     capacity. 

     "It is unfortunate that the recent FERC order modified the capacity 
rights in a way that
     will not allow the capacity to serve the purpose that Enron North 
America originally
     intended when they outbid the prearranged transactions. In the interest 
of fairness and
     good customer relations, we have agreed to release them from the 
contracts," said John
     W. Somerhalder II, president of El Paso Energy's Pipeline Group. 

     El Paso Natural Gas has asked FERC to reconsider the mid-January order 
that
     essentially has reduced the commercial value of the Block II firm 
transportation
     capacity that Enron had agreed to acquire. With the collapse of its 
contract deal with
     Enron, it couldn't be immediately determined whether El Paso will 
continue to pursue
     rehearing. 

     El Paso is seeking rehearing after being rebuffed by FERC in its request 
to stay the
     provision in the order restricting delivery rights of Block II capacity. 

     The pipeline is seeking a reversal of a decision in which FERC said El 
Paso's 1996
     turned-back capacity settlement bars El Paso from marketing Block II 
capacity on a
     primary basis to any delivery point other than the one at Pacific Gas &
     Electric-Topock, AZ. That ruling stripped the Block II capacity of 
primary delivery
     access to the Southern California Gas-Topock delivery point, which is 
the most
     sought-after by shippers of San Juan Basin gas. 

     It was a major blow to El Paso and Enron, which had contracted for the 
Block II
     capacity in December on the condition that it would have primary 
delivery access to the
     Southern California market.. 

     Without a favorable decision on rehearing, "the result may well be a 
diminution of the
     value of Block II capacity," El Paso told FERC. "Without question, 
Enron, as a new
     shipper on the capacity" and future holders of that capacity "will 
suffer a disadvantage in
     the market...." 

     El Paso contends the Commission's ruling, if unchanged, would thwart the 
intent of the
     1996 settlement, which called for the pipeline and its customers to 
share the risks of
     unsubscribed capacity on El Paso's system, and for El Paso to share a 
portion of the
     revenues it received from re-marketing the capacity. 

     "An essential element in El Paso's ability to maximize the revenues it 
agreed to share
     with its firm customers was the ability to market the 614 MMcf/d of 
Block II capacity
     on a primary basis to delivery points other than PG&E-Topock," the 
pipeline noted.
     Stripping El Paso of delivery-point flexibility for Block II capacity 
"will have a serious
     adverse impact on [its] ability to generate the maximum possible 
revenues for its
     capacity and thereby recover the costs it and its customers would 
otherwise have to
     absorb." 

     El Paso further said the Commission's decision was at odds with a 1998 
order
     addressing whether the pipeline could re-market capacity turned back by 
PG&E to the
     SoCal-Topock delivery point on a primary basis. Since the 1996 
settlement was silent
     on whether El Paso could re-market the capacity to delivery points other 
than
     PG&E-Topock, the Commission reasoned the settlement didn't preclude El 
Paso from
     selling the capacity at SoCal-Topock. 

     "That ruling established the proper interpretation of the 1996 
settlement. Now, the
     Commission has re-interpreted that same provision in a manner that is 
completely
     contrary to its previous ruling. The Commission provides no explanation 
as to how
     these two rulings can be reconciled or, alternatively, why it has 
changed its mind...." 

     El Paso said it was also seeking rehearing because it "cannot find any 
evidence" in the
     mid-January order that the Commission "even read, much less considered" 
its response
     as to the "proper interpretation" of the1996 settlement.