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.