Subject: RedRock
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Fri, 9 Mar 2001 19:39:00 -0800 (PST)

A couple of additional thoughts on this morning's conversation: 
 
1.  if we really think the next 6 or 8 months will sort out the takeaway and receipt point capacity issues, why not bet the whole farm and try to hold onto the whole 150 mm/d until next winter or fall and see if the perceived value goes up?  We could tell Calpine "no" on their bid and hold them off for several months "negotiating" if that's what we thought would lead to the best value.  I don't personally think this would be a prudent approach, but its where our logic leads in the extreme, so we'd better be prepared to explain why getting the bird in the hand from Calpine is smart.  

2.  We'll research the question of whether we can reject any recourse bids that come in over the next 6-8 months if we decide to hold onto the 60 mm/d for awhile.  I've thought about it a bit more and I'm pretty sure you're not going to like the answer.  First, FERC says we've got to have a recourse rate in place for all capacity, new or old.  One reason is that there needs to be a max rate that applies to long term capacity releases.  We have the option on new projects to go with the existing max tariff rate or a new incrementally designed rate.  We are going with the existing tariff rate on RedRock.  Fine, but that makes the existing rate the recourse rate for all purposes.  FERC's logic will be that TW could sell all of the RedRock capacity at recourse rates (currently $.38) and never suffer a revenue shortfall even if future rate cases reduce TW's overall rates, because the costs of all TW's facilities--including the new project--will be considered in the next rate case.  Think about it--our rates will only go down in the future if the ENTIRE cost of service goes down.  We'd never "lose money" on RedRock, but we might not make as much as we could have made with an 15 year fixed $.38 negotiated rate.

There is another  approach.  We could have Mavrix submit a binding bid right now for the 60 mm/d and just flat out sell it to them.  That would send a pretty strong signal to the market that we are serious about deadlines.  The downside of that aggressive approach is that it would get us into the same mess that El Paso finally got themselves out of, with Amoco, Dynegy and the whole gang beating the crap out of us.  I'm not to fired up about this approach for that reason.  I'll give you a call Monday after I've picked our best regulatory brains on these issues.  DF