Subject: RedRock
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Fri, 9 Mar 2001 08:39:00 -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