Rod Hayslett and I met with Kinder Morgan on 4/25 to discuss the possible commercial structures under which Enron and Kinder could jointly develop, construct and operate the proposed Hueco Pipeline Project to serve Pemex.  Because the meeting was the first of a series aimed at identifying and agreeing on structuring, no concrete decisions were reached.  However, a number of issues were identified and discussed:

1.   Relative ownership in the Project?  Both Enron and Kinder agree on a 50/50 split.
2.	Who operates?  Enron and Kinder both expressed a strong desire to have "business operation" rights, i.e. gas control, contract admin., marketing, etc.  Rod suggested that the impasse might be broken vis-?-vis the creation of a separate operating entity, which would be free to contract services from the parent companies.  Alternatively, either company might bid for the right to provide these services to the new pipeline.  Further negotiations on this issue are needed.
3.	What type of corporate entity?  Both Enron and Kinder thought the deal looked like an ideal candidate to drop into a LLC.  Moreover, Kinder noted an interest in possibility creating a MLP for their side of the investment.  No decisions were reached, but it was agreed that both companies probably were probably aligned with respect to cash flow and tax considerations.
4.	Rate issues.  Rod suggested that the parties consider "leasing" capacity to Pemex instead of filing a more conventional application for a FERC rate for firm carriage.  Rod believes there may financial and/or process advantages to this approach, and will attempt to classify and quantify same.
5.	Form of Commitment.  Both Enron and Kinder agreed that Pemex must be willing to execute a firm binding contract for a quantity of capacity (either under lease or under firm, one-part rates) sufficient to earn a reasonable rate of return.  Independently, each party had earlier discussed with Pemex a minimum term of at least 15 years.  Enron and Kinder talked about the use of 15% as an appropriate hurdle rate for investment.
6.	Project Financing.  Rod suggested that once the project has taken root, the parties should consider involving Mexican banks for financing.  With contracts and non-recourse financing from Mexico, presumably, there would be no currency risk to manage.
7.	Engineering/Design work.  Enron has agreed to do the preliminary design, mapping and [order of magnitude] cost estimation work.  Enron has committed to meeting with its NGPL counterparts next week (Tues., or Wed.) to go over design assumptions and final location of interconnection facilities.
8.	Next Commercial meeting.  NGPL and Enron will talk by telephone on Monday to see if internal meetings have yielded progress on the issues of facility operations and possible forms of business structuring.
9.	Joint Presentation to Pemex.  Assuming Enron and NGPL are able to reach tentative agreement on the construct of a joint partnership for the project, both parties will make a presentation of their findings and offer a joint proposal to Pemex.  The Pemex meeting is tentatively scheduled for May 23 in Mexico City.

Rod, will you and Danny and/or Steve Harris brief Stan on this project during Monday's staff meeting?  

Morgan, will you confirm that you and Eric are prepared to meet with NGPL by Wed. next week to discuss design assumptions and location of interconnects?

Thanks.

Jeff