Shelley,
I'm glad we made the decision to participate in today's drafting session.  There were only nine of us involved, with Ed Ross, Skip Simmons and Craig Chancellor representing the generators, while Byron White, Georgia Carter and myself were there to represent the pipelines.  The others were with the Alliance.  Ed was his usual self.  He was confidently making the good economic case why the pipelines should consider the generator's position and how/why the FERC would likely side with them.  Craig tried to frame it commercially, and Skip played peacemaker.  Byron and I played a little "good cop/bad cop" on behalf of the pipes, with Byron being the bad cop.  

Anyway, sum and substance, I think we'll be more pleased with the next draft of this document than what was submitted to us recently.   The first sentence was replaced with a more sweeping statement of intent and mission of the parties that focused on the provisioning of the service being subject to physical operating considerations.  There emerged a realization that maybe two products are being contemplated here:  (1) a product that blocks out a period of time for uniform deliveries (say, 8 hours), and (2) a product that basically provides the generator an option on when to take the agreed upon block of capacity.  It was agreed that the first product is likely to be less valuable than the second, and priced accordingly.  Byron and I argued that segmenting hourly rights should not be mandated, and in fact, may be physically impossible along some locations of the pipeline.  The generators originally intended segmenting as possibly relating to how the NURF rights were carved up by hour, (ex. an 8 hr. block of 5,000/d could be repackaged as two 8 hr. blocks of 2,500/d).  I'm not sure whether we got consensus there or not -- we'll have to see the next draft.

The big ticket items (nos. 8, 9) got the most press.  I was troubled by the generators' interpretation of both.  In the case of no. 8, the generators wanted to predesignate a mechanism whereby an existing customer holding a firm service (whether FT, NNS or storage) could, pursuant to the conversion formula, remarket their original firm service as NURF.  The generators were looking at this provision as "throwing a bone" to existing customers who might want to compete with the pipeline for NURF service using capacity (ex. seasonal) that may not be fully utilized.  Obviously, the predetermined conversion factor was a huge problem for the pipelines, as well as the whole notion of trying to fit a round peg into a square hole (ie. two or more different product types).  We pointed out the services were all different, and in fact, any combination of those services, conceivably, could be repackaged under today's rules and sold as a proxy for NURF.  I believe we were successful in taming that language down substantially.  However, be on the lookout for the next draft.

Finally, with respect to no. 9, where the generators want receipts considered rateable with deliveries for purposes of NURF, the generators had an intersting slant.  Essentially, Ed was saying that he didn't want the pipelines to hold the generators hostage on rates for NURF if the pipelines were the only ones who could offer NURF.  By requiring the pipelines to consider rateable receipts as meeting the NURF criteria, then Ed said the generators would receive the benefits of a competitive marketplace for "NURF-like" service.  Skip pointed out that taking gas out of storage at Westar in West Texas and using it as an hour by hour offset for deliveries to a power plant located at the California border was probably unworkable.  However, he also posed the hypothet that if SoCalGas were to provide the same storage service at the California border and those deliveries into SoCalGas could be adjusted to take into account the deliveries to the power plant (a sort of diversion of gas theory), then the pipeline should be operationally indifferent to whether it was providing NURF service or a 3rd party was providing a NURF-like service.  They just want others to have the ability to compete with the pipeline.

Of course, the pipeline argued that operationally those products may not be the same.  Moreover, accepting such a nomination from SoCalGas could conceivably knock off other uses of the capacity the pipeline was counting on (IT, LFT, etc.) as an offset which gave rise to the lower rate for the pipeline's NURF service.  Skip scratched out a more tame version of no. 9, and Ed agreed to consider it.  Be on the lookout for what they come up with.

Overall, as I said, I'm glad I was there, as well as the other pipeline representatives.  I hope that we were successful in getting the generators back on track here.  I'll be interested in seeing how much of our discussion today is embodied in the next generator draft.

I told the group they were in trouble on Thursday, as we were sending in the "A" team.  Good luck and call if you have any questions. 






From:	Shelley Corman/ENRON@enronXgate on 02/13/2001 10:59 AM
To:	Mary Kay Miller/ET&S/Enron@ENRON, Robert Kilmer/ENRON@enronXgate, Drew Fossum/ET&S/Enron@ENRON, Dave Neubauer/ET&S/Enron@ENRON, Danny McCarty/ET&S/Enron@Enron, Steven Harris/ET&S/Enron@ENRON, Susan Scott/ET&S/Enron@ENRON, Bob Burleson/ET&S/Enron@ENRON
cc:	Jeffery Fawcett/ET&S/Enron@ENRON 

Subject:	Principles for Generator Discussion


This week there are two scheduled pipeline/generator sessions.  Today, the generators will be meeting with a small group of pipelines in a drafting session.  On Thursday, the third meeting of the larger pipeline/generator group is scheduled. 

Last Friday, I faxed you a copy of the latest strawman for a NURF service with my comments. I noted that the strawman is moving in the wrong direction.  I decided to formalize these thoughts into our own set of principles.

Jeff Fawcett will be representing our viewpoint at the drafting session today & I will cover the dialogue on Thursday.  Let me know if you have any other feedback.  Of course, anyone else is welcome to attend these meetings with Jeff or I.