What a tangled mess.  please call and splain what's going on here.  Thanks. DF
---------------------- Forwarded by Drew Fossum/ET&S/Enron on 05/11/2000 
09:57 AM ---------------------------
   
	
	
	From:  Bob Chandler                           05/10/2000 10:33 AM
	

To: Susan Scott/ET&S/Enron@ENRON
cc: Rod Hayslett/FGT/Enron@Enron, Dan Fancler/ET&S/Enron@Enron, Drew 
Fossum/ET&S/Enron@ENRON, Mary Kay Miller/ET&S/Enron@ENRON 

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo

Please note that if TW eventually decides to file for a tariff change to 
allow cash in lieu of in-kind fuel retention that Rod would like to see our 
proposed accounting methodology included in the filing.  
---------------------- Forwarded by Bob Chandler/ET&S/Enron on 05/10/2000 
10:26 AM ---------------------------

Rod Hayslett

05/10/2000 10:25 AM
To: Bob Chandler/ET&S/Enron@ENRON
cc:  

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

If FERC is going to tell us the accounting or specifically approve our 
proposed accounting then I have no issues.     I do not want to have a tariff 
change with our interpretation of accounting requirements for it, without 
that specific approval.   So I guess we need to specifically ask for approval 
of the accounting.



   
	
	
	From:  Bob Chandler                           05/10/2000 09:32 AM
	

To: Rod Hayslett/FGT/Enron@Enron
cc:  

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

See responses below.



Rod Hayslett

05/10/2000 06:38 AM
To: Bob Chandler/ET&S/Enron@ENRON
cc:  

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

Some simple questions?





As I indicated this morning, it's not that I "want" to classify these credits 
as revenues in order to achieve any commercial, regulatory, overhead 
allocation or tax objectives, but if all other factors are considered equal 
believe that revenue treatment is the most appropriate decision from  both 
GAAP and FERC USofA standpoints.  

FERC USofA

In the "Shipper Supplied Gas" section of Order 581 the Commission concluded 
that "it is not appropriate to mandate revenue recognition for gas provided 
by shippers for compressor fuel and other pipeline system use and used to 
provide transportation services.  Instead, each pipeline will have the 
discretion to determine whether it will recognize revenue for these 
transactions in its accounting records...Pipelines electing to recognize 
shipper provided gas as revenue must also recognize an equal amount of 
purchased gas expense.  Pipelines would credit the appropriate transportation 
revenue account (Accounts 489.1 through 489.4) and record an equal amount in 
Account 805, Other Gas Purchases."    We have chosen not to recognize 
revenue, but we do want to track our transactions, so we debit and credit 
different subaccounts of acct 805.  The over-retained volumes on TW are 
debited to acct 805 and credited to acct 495 Other Revenues (also in 
accordance with Order 581. However, for internal reporting we map the 495 
credit to cost of transport (expense).    Sounds reasonable to me.    Will 
you be able to continue that in SAP? Yes.  We'll be using statistical orders 
in lieu of subaccounts.
While the Commission agreed that pipelines would not be required to recognize 
shipper provided gas on its books, it did require those who chose to do so to 
record it as transportation revenue, not as a credit to fuel or gas purchase 
expense.

GAAP

Revenues.  Statement of Financial Accounting Concepts No. 6 defines revenues 
as inflows or other enhancements of assets of an entity or settlements of its 
liabilities (or a combination of both) from delivering or purchasing goods, 
rendering services, or other activities that constitute the entity's ongoing 
major or central operations.

In the TW proposal the cash inflows are the result of a fuel charge factor in 
the transportation tariff.  TW's ongoing major or central operation is the 
rendering of natural gas transportation services to shippers pursuant to its 
tariff.  Therefore  the credits resulting from the assessment of the fuel 
charge constitute transportation revenues.    I don't think there is a 
limitation with respect to cash received in lieu of gas.  When gas is 
retained we can debit and credit 805 and it's a wash.  When we receive cash 
we have to charge a balance sheet account (Cash) and credit an income 
statement account.  We can't opt out of recording an earnings creating 
transaction.   What is the argument that this cash does not just take the 
place of Gas you would have received and should track the normal accounting 
for gas?  The cash alone cannot take the place of a retained volume; the cash 
together with a gas purchase is the volumetric equivalent of a volume 
retained.   Under this proposal we would charge gas purchase expense when the 
cash is used to buy gas that would replace the volumes not retained in 
kind.   I am concerned that what you are proposing may not work as well after 
the next rate case (since I don't believe it likely we will be allowed to 
continue to collect the windfall) and we may be setting ourselves up for 
restatements.    But I guess it really won't matter, because whatever we do 
FERC will have specifically ordered us to account for it that way, isn't that 
right?  There is nothing about our current or proposed accounting that would 
have to be changed as the result of a future rate case that changes the 
volumetric retention factors.  However, if a tracker is imposed, then we 
would have additional entries to make, similar to those we now make on NNG.  
In any event, the  imbalance cashout  approach described below  would result 
in the recording of fuel retention entries  (debit and credit account 805)  
exactly the same as we now record for volumes  retained.  It would merely 
result in the additional entry to resolve the imbalance by debiting cash and 
crediting the imbalance receivable from the shipper.  

Expenses.  Statement of Financial Accounting Concepts No. 5 speaks to the 
recognition of expenses and losses:  "Further guidance for recognition of 
expenses and losses is intended to recognize consumption (using up) of 
economic benefits...during a period.  Expenses...are generally recognized 
when an entity's economic benefits are used up in delivering or producing 
goods, rendering service, or other activities that constitute its ongoing 
major or central operations..."

In the TW proposal natural gas volumes are consumed in the operation of 
compressor engines to render natural gas transportation service to 
shippers...the ongoing major or central operation of the company.  Receiving 
cash from shippers in accordance with the Tariff's fuel charge does not 
reduce the consumption of natural gas volumes in rendering transportation 
service, Instead it provides economic assets (cash) to the company to pay for 
the gas volumes that have to be acquired to run the compressors.  Therefore 
the proceeds from the fuel charge represent transportation revenues for the 
company, not a fuel or gas purchase expense reduction.     I recently 
received a memo from Susan Scott (Legal) indicating that in approving tariff 
changes to allow shippers to pay cash for fuel use rather than to provide 
in-kind volumes, FERC looks at the situation as being analogous to cashing 
out an imbalance, where the imbalance was created by the shipper not 
delivering the fuel retention volumes.  If we followed FERC's lead here we 
would record the fuel retention entries with a debit and credit to Account 
805, then credit the cash receipt from the shipper as a reduction of its 
imbalance.  Any gain or loss on the cash-out would be credited to Acct 495 
(gain) or charged to Acct 813 (loss), just like any other gain or loss on 
resolution of an imbalance.  

I think the cashout approach will probably meet the objective of not bloating 
reported margins...at least if the tariff language is consistent with this 
concept.  If you prefer this cashout approach to my original proposal to 
record fee revenue, then I will go ahead and re-draft the accounting memo 
along those lines.  Any final determination of the appropriate accounting, 
though, would have to be made after the language in the tariff revision is 
finalized. However, if the cashout approach is your preference, then I expect 
that we could work with Rates to make sure that the tariff language doesn't 
conflict with the cashout approach.

Shall I re-draft and recirculate the memo using the cashout approach?        




Rod Hayslett

05/08/2000 06:32 AM
To: Bob Chandler/ET&S/Enron@ENRON
cc:  

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

I guess I'd like to understand the reason for wanting to call them 
revenue?    



   
	
	
	From:  Bob Chandler                           05/05/2000 06:04 PM
	

To: Rod Hayslett/FGT/Enron@Enron
cc:  

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

I don't disagree that there are frequently numerous ways to account for 
things--and some ways are better than others for tax, regulatory, financing 
and other purposes.  From an historical perspective before Order 636 we 
didn't seem to have any difficulty recording the proceeds from the PGA 
tracker portion of the tariff as transportation revenue.  Under the proposed 
circumstances, we are charging a fee based on average fuel retention 
percentages that are set somewhat higher than actual consumption and there is 
no requirement for a true-up.  In this circumstance, even though we may call 
it a fuel reimbursement factor, it seems to be more characteristic of revenue 
than expense credit.  

That having been said, if it's deemed to be advantageous to the company to 
account for these cash proceeds as an expense credit, I could support 
crediting the proceeds to a/c 805 similar to our accounting for volumetric 
fuel retention.  If that's the path you'd like us to follow, I'll amend the 
draft memo accordingly.  Please confirm.





Rod Hayslett

05/05/2000 06:58 AM
To: Bob Chandler/ET&S/Enron@ENRON
cc: Dan Fancler/ET&S/Enron@ENRON 

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

My first blush problems are 2.     1) This is really reimbursement for an 
item that is designated an expense - compressor fuel and so I don't know why 
you want to show it as revenue.     2)   Having a stat order will not help 
the income statement presentation of revenues, a lower percentage of costs 
being recovered from demand charges, a major factor if we decide to make TW 
really stand on its own.

What is the reason for wanting to bloat the revenue in the income 
statement?     Explain the logic for showing a revenue item for the contra of 
an item that has been determined to be an expense.     
 


   
	
	
	From:  Bob Chandler                           05/04/2000 04:16 PM
	

To: Rod Hayslett/FGT/Enron@Enron
cc: Dan Fancler/ET&S/Enron@ENRON 

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

If we go with the transport revenue approach, we would for sure set up a 
separate SAP statistical order to accumulate the fuel reimbursement fee 
separately from the other revenue components.  If you think this approach is 
distortive from a reporting trend perspective, we could classify these 
revenues as "other gas revenues" on our GAAP statements--similar to the way 
we've classified excess fuel retention revenue in TW's 1999 GAAP statements.  




Rod Hayslett

05/04/2000 02:41 PM
To: Bob Chandler/ET&S/Enron@ENRON
cc: Dan Fancler/ET&S/Enron@ENRON 

Subject: Re: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo  

I would think at a minimum we would like to have some kind of a tracking 
account (nojn-FERC)  for accounting purposes to be able to tell the earnigs 
impact of the transactions.      I have a problem with recording the revenue 
in a plain transportation revenue account since it will skew the percentage 
of transport revenues collected from demand charges  which is an important 
piece for the financial world.   Ultimately I guess FERC will tell us how to 
account for it.



   
	
	
	From:  Bob Chandler                           05/04/2000 12:55 PM
	

To: Mary Kay Miller/ET&S/Enron@ENRON, Steven Harris/ET&S/Enron@ENRON, 
Lorraine Lindberg/ET&S/Enron@ENRON, Susan Scott/ET&S/Enron@ENRON, Glen 
Hass/ET&S/Enron@ENRON
cc: Steve Klimesh/ET&S/Enron@ENRON, Dan Fancler/ET&S/Enron@Enron, Rod 
Hayslett/FGT/Enron@Enron, Jerry Thomas Moore/Corp/Enron@ENRON 

Subject: TW Proposal for Fuel Retention in Dollars (not in-kind) -- Draft 
Accounting Memo

From what we have so far been able to learn about the referenced proposal, 
and after discussions with Dan Fancler, I prepared the attached draft of an 
accounting memorandum for your consideration.  

Please advise if you have additional facts or ideas to be considered.



By copy of this memo I'm asking Jerry Moore for excise tax advice as to 
whether TW would risk incurring excise tax if we record gas sales to the 
shippers and then retain the volumes for fuel.