Tracy, I talked to the Colorado Sales and Use Tax auditor today.  The auditor will submit two assessments:  Assets and Compressor Fuel.  

Compressor fuel will be assessed, but I believe the following are plausible arguments that might succeed and favorably adjust the estimated $350,000 liability (Plus Penalty & Interest):

	(2)(b)(ii)  "Purchase Price" should be adjusted to reflect TWP as a market maker, that could purchase natural gas 			lower than market could supply and transportation in San Juan Index
			(Price should be $1.80 / MMBTU down from Avg $1.90/ MMBTU)
	   (b)(iii)	The correct tax rate would be 3%, not 5%, local tax should not be applicable.  Formal research is required.


Assuming $1.80/MMBTU, the original estimate ($350k) might be adjusted down to $231,218.46, or as low as $138,731.08, as follows:

				 2,569,094 	Consumption  MMBTU
			   $		1.80 	Price / MMBTU
			   $4,624,369.20 	Purchase 
				$92,487.38 	Local Tax
			     $138,731.08 	State Tax
			     $231,218.46 	Total Tax

Please call if you would like to meet and discuss this issue.  

Dan Rittgers
Ext 35734



-----Original Message-----
From: Rittgers, Dan 
Sent: Monday, October 01, 2001 12:21 PM
To: Geaccone, Tracy
Cc: Hrna, Sandra
Subject: FW: Transwestern pipeline Colorado Audit FEIN 74-1294795
(Account L80-30571) 



Tracy, I called the auditor last week, following our conversation.  The auditor has not returned my call.  Field work is complete and no formal assessment has been issued.  I have unresolved issues which the auditor must consider before issuing the assessment. In Summarizing our conversation last week:

1)  I have not seen a preliminary assessment, which I hoped would be coming in October.
2)  During the auditor's field audit, the auditor proposed to assess tax on the following issues:
    a)  Assets Purchase $500,000 in Tax, Penalty & Interest.  I might protest almost all assessed 
	  amounts for this category.
    b)  Expenses (Compressor Fuel) Estimate $350,000 for audit Period.  Issues not resolved:
	  i)    My position is that no tax is due, except for domestic fuel consumption.
	  ii)   If "Compressor Fuel" is taxable, what is the "Purchase Price".
	  iii)  Is the 2% local tax applicable to "Compressor Fuel"?
	  iv)   Should tax be calculated prospectively, rather than retroactively?
	  v)    If assessed, Transwestern requests that the current regulation be revised to 
		  reflect a change for this issue (Tariff may accommodate a pass through without
		  a rate case?).

I will provide a copy of the assessment for your records and subsequent consideration, when available.  The auditor was promoted during my audit and is transition.  Considering this transition and my challenges, response time is unpredictable.

-----Original Message-----
From: Chandler, Bob 
Sent: Tuesday, August 28, 2001 5:22 PM
To: Rittgers, Dan
Cc: Geaccone, Tracy; Zahn, Gary
Subject: FW: Transwestern pipeline Colorado Audit FEIN 74-1294795
(Account L80-30571) Tour, Status and Protest (COMPRESSOR FUEL)


Could you please give the Transwestern Business Unit Coordinator some advice on when this audit will be resolved and what you think the best estimate is on the amount of compressor fuel tax  (PPI) that have to expense.

Thanks

-----Original Message-----
From: 	Geaccone, Tracy  
Sent:	Tuesday, August 28, 2001 4:28 PM
To:	Chandler, Bob
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795 (Account	 L80-30571) Tour, Status and Protest  (COMPRESSOR FUEL)

What is the timing of this?
-----Original Message-----
From:	Chandler, Bob 
Sent:	Tuesday, August 28, 2001 10:40 AM
To:	Geaccone, Tracy
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
	(Account L80-30571) Tour, Status and Protest (COMPRESSOR FUEL)




-----Original Message-----
From:	Geaccone, Tracy  
Sent:	Tuesday, August 28, 2001 10:06 AM
To:	Chandler, Bob
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795 (Account	 L80-30571) Tour, Status and Protest  (COMPRESSOR FUEL)

So, I can't tell what my exposure is here.  Which line do I use?
The maximum shown on the schedule is $1.1MM   (expand column width on Column A).   Although it looks from the spreadsheet as if $300 to $600K may be more realistic for the compressor fuel tax through 4/01.  However, there could be $11K/month going forward. 
The other issue would be the sales tax on our purchase of personal property from NWP.  Whatever that may turn out to be, it should not be an earnings concern, but would be capitalized as part of the plant.  
If you need more specificity, I suggest you give Dan a call. 

-----Original Message-----
From:	Chandler, Bob 
Sent:	Tuesday, August 28, 2001 9:52 AM
To:	Geaccone, Tracy
Cc:	Zahn, Gary
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
	(Account L80-30571) Tour, Status and Protest (COMPRESSOR FUEL)


I'm sure Jerry is aware of this.  He isn't Dan's boss, but they're in the same CC and only a couple of cubes away in the Jefferson bldg.   
I don't think we have any reserves/accruals for these on the TW balance sheet.  
-----Original Message-----
From:	Geaccone, Tracy  
Sent:	Tuesday, August 28, 2001 8:48 AM
To:	Chandler, Bob; Zahn, Gary
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795 (Account	 L80-30571) Tour, Status and Protest  (COMPRESSOR FUEL)

Has Jerry Moore from the tax group been involved in this?  Do I have anything on the balance sheet for this?
Tracy
-----Original Message-----
From:	Chandler, Bob 
Sent:	Tuesday, August 28, 2001 8:45 AM
To:	Zahn, Gary
Cc:	Geaccone, Tracy
Subject:	FW: Transwestern pipeline Colorado Audit FEIN 74-1294795
	(Account L80-30571) Tour, Status and Protest (COMPRESSOR FUEL)


FYF   Tax exposure.
-----Original Message-----
From:	Rittgers, Dan  
Sent:	Monday, August 27, 2001 11:15 AM
To:	'Petersen, John'
Cc:	Russo, Gavin; Hrna, Sandra
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795 (Account	 L80-30571) Tour, Status and Protest  (COMPRESSOR FUEL)

John, I have prepared a more formal position regarding the exemption of "Compressor Fuel" consumed in a "continuing business activity" (Gas services).  Before I submit this position to you, I will circulate my position letter within the company and validate the facts.  
I will be relying primarily on Colorado Regulations 26-102.21 or 39-26-104.1(d.1).  Have these regulations changed recently?  My service may be out of date.
Attached below are schedules for Compressor and Domestic fuel consumption for the audit period.
-----Original Message-----
From:	Petersen, John [mailto:jpetersen@spike.dor.state.co.us]
Sent:	Monday, July 30, 2001 2:16 PM
To:	Rittgers, Dan
Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
	(Account L80-30571) Tour, Status and Protest


Dan,
Here is my initial response.  I haven't had time to do too much research on
this, but this preliminarily the Department's position.  Sorry this took so
long  but I am working on a bankruptcy case which has my first priority.  jp

> ----------
> From:	Rittgers, Dan[SMTP:Dan.Rittgers@ENRON.com]
> Sent:	Monday, July 23, 2001 12:20 PM
> To:	Petersen, John
> Cc:	Russo, Gavin; Hrna, Sandra
> Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
> (Account	 L80-30571) Tour, Status and Protest
> 
> <<File: REG.doc>><<File: industrial use.doc>>
> The trip was very helpful for me as well.  I learned a lot from Terry
> the day before.  
> 
> The decision to proceed further will not be my decision, but I will
> prepare an internal analysis, along three main points.  In preparing
> this internal analysis, it would be helpful to know your (Colorado's)
> position on the following issues:
> 
> ASSETS/PURCHASE AND SALE AGREEMENT (PSA)
> 
> Our original position related to the characterization of our purchase as
> the purchase of real property, rather than TPP.  Regarding your
> acquiescence of the pipeline from the original jeopardy assessment under
> this argument, thanks that is a big chunk of the original assessment.
> My tentative concern under this argument is that foundation, conduit,
> wires, pipe and valves remain on the schedule.  The compressor might be
> a bit more difficult to argue under this position.
> 
> Further, Friday, I submitted a copy of the "Operating and Sale
> Agreement".  This agreement will further support my position that the
> PSA was not a purchase of TPP, but was the purchase of a 77% equity
> interest or right to the pipeline's capacity.  Using this agreement, my
> position is that the transaction is fully exempt as provided by Reg.
> 26-102.15 (SEE Reg.doc ATTACHED).  It says,' "Tangible personal
> property" does not include intangible personal property constituting
> mere rights of action..."'  Transwestern is acquiring a "right" to
> capacity on the pipeline, as stipulated under the terms of "Exhibit C".
> Given the "Operating and Sale Agreement", do you see this as a viable
> conclusion?
If the operating agreement constituted the entirety of the writing
accompanying the transfer of cash from Enron to Northwest Pipeline Corp., I
might agree.  But, the purchase agreement lists assets acquired for cash.


> COMPRESSOR FUEL/DOMESTIC FUEL
> 
> I'll get the Compressor and domestic consumption numbers soon, and the
> price will be determined a little later.  There are separate meters for
> measuring Compressor and Domestic fuel consumption.  Friday, I submitted
> my tax exempt position for Compressor Fuel consumed for Gas Services
> (SEE industrial use.doc BELOW).
> 
I don't believe that the statute and regulation support that position.
Transporting gas would have to qualify as providing gas or electric service
to qualify for the exemption.  I don't believe it does.  I definitely need
more research on this.

> PENALTY & INTEREST
> 
> I will be requesting a waiver of penalty and interest on any assessment.
> 
The disposition of penalty and interest will be resolved at a level above the auditor level.
> -----Original Message-----
> From:	Petersen, John [mailto:jpetersen@spike.dor.state.co.us]
> Sent:	Monday, July 23, 2001 9:52 AM
> To:	Rittgers, Dan
> Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
> (Account L80-30571) Tour, Status and Protest
> 
> 
> Dan
> 
> Good morning.  Thanks for the tour of the La Plata Facility.  It was
> very
> helpful.  I'll remove the $4,803,629 for the 'pipe 30" x .325' from the
> proposed taxable amount.  Everything else I'll keep as previously
> determined
> unless I receive additional information from you.
> 
> Also, I look forward to receiving the gas consumed figures for both
> domestic
> use, which I understand is taxable, and the compressor use which remains
> unagreed. If you have a proposal for the valuation of the gas consumed,
> that
> would be helpful also. Thanks again for the tour and your assistance in
> completing the audit.  John Petersen, 303-355-0400 x 622.
> > ----------
> > From:	Dan.Rittgers@enron.com[SMTP:Dan.Rittgers@enron.com]
> > Sent:	Monday, July 02, 2001 10:08 AM
> > To:	jpetersen@spike.dor.state.co.us
> > Subject:	RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
> > (Account	 L80-30571) Tour, Status and Protest
> > 
> > 
> > Return Receipt
> >  
> > 
> >     Your      RE: Transwestern pipeline Colorado Audit FEIN 74-1294795
> > 
> >     document  (Account   L80-30571) Tour, Status and Protest
> > 
> >     :
> > 
> >  
> > 
> >     was       Dan Rittgers/ENRON@enronXgate
> > 
> >     received
> > 
> >     by:
> > 
> >  
> > 
> >     at:       07/02/2001 11:08:50 AM
> > 
> >  
> > 
> > 
> > 
> > 
> > 
>