Steve,

Yes, Dan did ask my opinion on the feasibility of forming a new affiliate 
company (NEWCO).  I know he asked many others as well.  Here is what I told 
him:

There is no regulatory prohibition on NEWCO holding capacity on our pipelines.
NEWCO will have to be set up to meet the creditworthiness standards or else 
we raise the risk of having to lower the creditworthiness test for others.
Under the current rules, even though NEWCO will hold capacity, NEWCO will not 
be a Marketing Affiliate (i.e. requiring separate staff/systems) etc. so long 
as they are not buying or selling gas.  On the flip side, if the new 
affiliate sells gas Including delivered gas), the entity will be a Marketing 
Affiliate and we would have to set if up so all the separation rules are 
met.  I anticipate that FERC's marketing affiliate rules may change in 2001 
such that any energy affiliate, including capacity managers, will be subject 
to the marketing affiliate standards of conduct.  If the success of NEWCO 
depends on sharing unposted information, this strategy is not likely to last 
very long.
Most significantly, when the new affiliate wants to resell/trade its capacity 
rights, it will have to do so through the pipeline's capacity release rules.  
The new affiliate can arrange pre-arranged transactions of less than 30 days, 
but any other deals would have to be posted for bid.   But, I don't think we 
should be scared off just because the deals would have to go through capacity 
release.  NEWCO could do less than 30 day releases at above max. rates on a 
prearranged basis.  NEWCO could also do 1 year of less prearranged deals at 
above max rate,  they would just have to be posted to see if anyone wanted to 
match the deal.


The crux is that there is no regulatory prohibition standing in the way of 
setting up a new affiliate, but it is important to figure out what the new 
affiliate's objective is.  
If the point is to capture short-term, above max rate deals without going 
through a negotiated rate posting, then we may follow a fairly simple 
strategy of setting up a limited NEWCO to buy and sell capacity only.  
If the point is to "churn" capacity trading, then the issues are essentially 
the same as those involved in setting up bid/ask trading on EOL.  
If the point is longer-term, total energy type of deals, then we just need to 
understand that the new affiliate will be a marketing affiliate.

You ask what is being done to further this idea.   I think we need some 
clearer marketing vision of how NEWCO plans to make money (through above max 
rate deals in capacity release?  through rebundled deal? ) before  a more 
definitive list of regulatory steps can be developed.





Steven Harris
12/01/2000 12:26 PM
To: Shelley Corman/ET&S/Enron@ENRON
cc:  

Subject: New Marketing Company

Shelley,
 I know Danny talked to you a while back about us creating a new company to 
hold capacity on other pipes, etc. What ever happened to that idea? I would 
really like to pursue that avenue as I believe we may be missing out on some 
things we could do. Please let me know the status. Thanks.

 Steve