FYI... This was received yesterday from the CPUC.  As you can see, settlement prospects do not look good.  Ann is trying to get a meeting set up to discuss our next step regarding settlement (tentatively 1:30).  Greg
-----Original Message-----
From: Passamonti, Ida [mailto:imp@cpuc.ca.gov]
Sent: Wednesday, October 17, 2001 3:41 PM
To: Porter, Gregory J.
Subject: RE: E TW settlement offer
Sensitivity: Confidential



 Yes - the copies of the letter orders and one decision of the footnote arrived yesterday and we have looked at them. 

First, I think it is in this proceeding that the FERC advisory staff raised the issue whether the contracts revealed contravention of FERC policy.  See the original order to show cause.  The issues addressed in the hearing were a means or an attempt to get more facts that relate to the original questions flagged by the FERC advisory staff regarding the FERC's policy on use of negotiated rates.  We also know that when Indicated Shippers attempted to challenge the policy statement when it first issued, the court said that such a challenge was not appropriate and only the implementation cases regarding the policy would give rise to issues the court could consider.  The CPUC is therefore in the right forum and in the right proceeding to claim that TW used market-based rates without authority to use market-based rates. TW's tariff must be modified to provide for the exclusion of market-based rates.    Of course we understand that the FERC had pinned its hopes on negotiated rates working equitably and legally by emphasizing all shippers must be treated in nondiscriminatory manner and all shippers who bid the recourse rate must be granted the capacity bid on at the recourse rate.  We saw in this proceeding, however, that shippers were not treated equally and in nondiscriminatory manner (see e.g. our discussion in CPUC's reply brief of TW's total disregard for accuracy and equitable treatment regarding announcement of delivery points ).

We also note that in your proposed tariff modification - last page of tariff changes attachment to your outline of settlement - you do not provide for evaluation of bids in a manner that would indeed assure shippers who bid for the capacity they want at the recourse rate would get that capacity at the recourse rate. If there are a number of bidders at the recourse rate and some bidders at a negotiated rate that is not fixed at a rate below the recourse rate, then the available capacity should first be prorated among the recourse rate bidders, and the remainder allocated to negotiated rate bidders.  Unless this is done, TW cannot say that shippers who bid the recourse rate are awarded the bid. If you include negotiated rates (not fixed below recourse rate)in prorating the capacity allocation, then you are not implementing the FERC's essential rationale that shippers must have the right to bid for the capacity they want at the recourse rate if the pipeline is to be allowed use of negotiated rates. By prorating among negotiated rate shippers, you are forcing shippers who only want to bid the recourse rate to enter into a negotiated rate to get the total capacity they need. That undermines  the FERC's only rationale for authorizing negotiated rates.

We think,therefore, that the next step would be for TW to draft a revision of the initial TW settlement offer expressing whatever changes TW is proposing in response to Indicated Shippers comments and CPUC

s comments.   I will send in separate e-mail an outline of CPUC concerns regarding TW's original settlement offer. This outline summarizes the issues TW may want to consider if it revises that offer.

-----Original Message----- 
From: Porter, Gregory J. 
To: Passamonti, Ida 
Sent: 10/17/01 5:45 AM 
Subject: RE: E TW settlement offer 
Sensitivity: Confidential 

Privileged and Confidential 
  
Ida, 
  
A response to your questions regarding the citations was provided 
yesterday under separate cover. 
  
In regards to TW's settlement proposal, we need to know whether the CPUC 
can settle this case and if so on what terms.  To date, you and I have 
discusseds everal policy matters.  It is not practical to think all of 
them will be addressed in this proceeding, let alone in a settlement. 
Therefore, it would be most helpful if the CPUC would specifically let 
us know what it needs to settle.  
  
We have discussed so many issues that I am quite honestly having 
difficulty identifying the CPUC's objective in this proceeding as 
opposed to general policy concerns that could be raised by the CPUC in 
other, more broad based, proceedings.  For instance, it is my 
perception, based on our last conversation, that CPUC will oppose any 
settlement that does not prohibit TW from negotiating agreements with 
shippers that include a rate component based off of published indexes. 
If this is correct, is the CPUC's concern the resulting rate (i.e., that 
the rate may exceed max rates) or is it the fundamental structure (i.e., 
index rates are inappropriate)?  TW will not give up the flexibility to 
enter into deals based off of published indexes.  Such deals reflect how 
the gas market works and are desired by customers.  Is it possible for 
the CPUC to agree on specific tariff changes of the nature proposed by 
TW and pursue broaderp olicy concerns in another proceeding? 
  
TW would like a specific response to the settlement proposal it provided 
on ora bout October 8, 2001.  Obviously, the more specific the better. 
However, our immediate question is whether the CPUC believes it is 
possible to reach a settlement based on the process oriented tariff 
changes proposed by TW or, if not, what else needs to be considered.    
  
Please give me a call when you get in today to discuss.  Thanks.  Greg 
J. Gregory Porter 
Assistant General Counsel 
Enron Transportation Services 
(402) 398-7406  (voice) 
(402) 398-7426  (fax) 
greg.porter@enron.com 

  
[Porter, Gregory J.]  ----Original Message----- 
From: Passamonti, Ida [ <mailto:imp@cpuc.ca.gov>] 
Sent: Tuesday, October 16, 2001 3:25 PM 
To: Porter, Gregory J. 
Subject: E TW settlement offer 
Importance: High 
Sensitivity: Confidential 



We are still reviewing your letters of October 12, 2001 and the 
settlement TW has thus far proposed.  One practical problem you may be 
able to help us with. In the first of your letters, you referenced  FERC 
approval of "index-to-index" type mechanisms in other proceedings as 
noted TW's Reply Brief at footnote 10 (page 48 not page 49).  The 
footnote of TW's brief, however, contains inaccurate and incomplete 
citations.  Please provide the correct citation for the reference to 
TransColorado decision, the docket number for the Great Lakes Letter 
order so we can try to retrieve it from FERC's electronic data base -or 
please provide a copy of the letter order; and a correction of the date 
of the letter order re Columbia in Docket RP96-389-026 since a July 7 
letter order cannot be found. Also, please let me know Greg how TW wants 
to proceed.  Should we communicate by telephone the CPUC's responses to 
the TW settlement offer and letters, and determine whether TW is 
prepared to revise the offer pursuant to our responses and those of 
Indicated SHippers?  Are weto  have a teleconference call including 
Kathy and Tom or just with Kathy to see where we are on the possibility 
of reaching a settlement?  Would TW like an outline of the CPUC's 
responses, thus far, including outline of questions or concerns still 
not answered by TW in their settlement offer?  How should the outline be 
sent? 



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