Message-ID: <6823796.1075851015813.JavaMail.evans@thyme> Date: Mon, 14 May 2001 14:52:00 -0700 (PDT) From: richard.shapiro@enron.com To: ray.alvarez@enron.com Subject: Re: Tariffs Approved Cc: harry.kingerski@enron.com, james.steffes@enron.com, robert.neustaedter@enron.com, steven.kean@enron.com, linda.robertson@enron.com, rebecca.mcdonald@enron.com, peter.weidler@enron.com, steve.hopper@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: harry.kingerski@enron.com, james.steffes@enron.com, robert.neustaedter@enron.com, steven.kean@enron.com, linda.robertson@enron.com, rebecca.mcdonald@enron.com, peter.weidler@enron.com, steve.hopper@enron.com X-From: Richard Shapiro X-To: Ray Alvarez X-cc: Harry Kingerski, James D Steffes, Robert Neustaedter, Steven J Kean, Linda Robertson, Rebecca McDonald, Peter E Weidler, Steve Hopper X-bcc: X-Folder: \Steven_Kean_Oct2001_2\Notes Folders\Attachments X-Origin: KEAN-S X-FileName: skean.nsf Outstanding outcome- Ray, this was an incredible result given the challenging context, to say the least....You should feel quite proud of this achievment- Thanks! Linda Robertson 05/14/2001 01:06 PM To: Ray Alvarez/NA/Enron@ENRON cc: Harry Kingerski/NA/Enron@ENRON, James D Steffes/NA/Enron@ENRON, Richard Shapiro/NA/Enron@ENRON, Robert Neustaedter/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J Kean/NA/Enron@ENRON Subject: Re: Tariffs Approved Excellent, and congratulations. Ray Alvarez 05/14/2001 12:34 PM To: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Linda Robertson/NA/Enron@ENRON, James D Steffes/NA/Enron@Enron cc: Harry Kingerski/NA/Enron@Enron, Robert Neustaedter/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Tariffs Approved The rate case that the governmental affairs group filed in January, on behalf of Transredes, has come to a very successful conclusion and the new rates will go into effect towards the end of this month. The rates are not much lower than what we filed for, and represent a very significant increase over the previous rates. The tariff methodology and revised regulations, put into effect by the Supreme Decree, were followed to the letter by the regulator despite political pressure to arbitrarily keep rates down. The deliverables here were to (1) obtain a tariff methodology via Supreme Decree that would make the company finance-able / rescue it from dire financial straits and (2) file a rate case and prosecute it to obtain hard rates in accordance with the tariff methodology. This second deliverable has now been completed. Transredes has had a bond issue pending since last year due to the uncertainty about rates; it is my understanding that the financial market loved the ruling and that Transredes sold $40 million worth of bonds in about 5 minutes! This ruling should also significantly increase Transredes's market value, relative to Enron's efforts to sell its interest in the company. ---------------------- Forwarded by Ray Alvarez/NA/Enron on 05/14/2001 11:38 AM --------------------------- Doug Farmer 05/11/2001 06:09 PM To: Peter E Weidler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Hansvander.klink@shell.com.br, Hans.h.vanderklink@si.shell.com cc: Jan van den Berg/TRANSREDES@TRANSREDES, John Naphan/TRANSREDES@TRANSREDES, Cyro Camacho/TRANSREDES@TRANSREDES, Pedro Elio/TRANSREDES@TRANSREDES, Fernando Gonzalez/TRANSREDES@TRANSREDES Subject: Tariffs Approved Gentlemen, I am delighted to report that SIRESE approved substantial increases in TR's tariffs consistent with the Law and Regulation. The details are :- Existing Tariff SIRESE Approved % Increase TR/CLHB Proposed TR/CLHB % Increase Gas Export (including surcharges) $0.18 $0.2205 22.5% $0.26 (excluding RG) 44.4% Liquids Domestic $1.05 $2.46 134.3% $3.25 209.5% Liquids Export $1.55 $2.31 49% $3.35 116.1% CLHB's tariffs were also approved as follows $1.19 $2.20 84.9% $3.528 196.5% As you can see we did substantially better than CLHB (comparable with our liquids domestic) !! We will get a detailed report on the assumptions used by SIRESE to reach their conclusions on Monday, but our inteligence suggests the following :- 1. Export gas volumes increased to 100% TR capacity, and 100% GSA + Cuiaba 2 assumed for SDA and TEMIN purposes 2. RG Compresion project deleted 3. Interest rate reduced to 10 or 10.5 % i.e. the rate in our bond issue 4. Liquids expansion in the South reduced 5. Some continuity of service CAPEX reduced 6. Unknown OPEX reduction and maybe a change to the OPEX allocation between concesions 7. OCC in service date slipped from 2003 to 2004. 8. Debt/Equity assumption changed from 60/40 to 70/30 Our strategy to respond to each of these points is as follows :- 1. Volumes. Covered by 8% rule, we can blete but can expect little back here. Clearly we will appeal if volumes exceed installed capacity in the short term i.e. 2002/2003. 2. RG Compression - not worth fighting for since we don't even have the support of BG 3. Interest Rate - We'll get this back when we do a tariff revision and actual rates are used. When we get the detail we will appeal if Jan feels we have concrete grounds i.e. commision costs etc. are omited. 4. Liquids Expansion in the South. Here we intend to do a detailed analysis of exactly what has been deleted and as a result what liquids/gas production will be shut in. If possible all assumptions to be agreed with the affected producers (PB, BG, Vintage and Chaco). We will then write to those producers(copy SIRESE , VMEH etc.) stating that on their recommendation the project scope was reduced by SIRESE. We will give them an estimate of the lost liquids/gas production (in both volume and cash terms) resultant from this decision. We will tell them that since they proposed these reductions we have no intention of appealing them but invite them to appeal. 5. Continuity of Service Capex. We need to see the detail here. We will take the moral high ground and be absolutely clear that we are not prepared to compromise our safety and environmental standards. We need to see exactly what has been removed, but my thought is that if that means we are unable to provide some services (e.g. LPG transportation) or the continued operation of some liquids laterals, we should write to those producers affected suggesting that if they wish these services to be continued they need to appeal the decision. Again since this is Capex we will get it back in the end on tariff revisions as long as the expenditure is approved on an annual basis in the SIRESE budget process. 6. OPEX - need to see the detail on Monday. 7. OCC - will not appeal - we need to do a detailed study to develop an OCC strategy. 8. Debt/Equity ratio. Strictly speaking what has been done is in accordance with the Law/Regulation - the regulation says the maximum allowed equity is 40%. However, we have very strong grounds to appeal since : a) we are currently miles away from 60/40 let alone 70/30, b) we can only borrow for CAPEX (as per bond issue and the policy of all/most banks/lending institutions) with the case presented in the rate case if we borrow to cover 100% of CAPEX we can easily demonstrate that we are still miles away from 60/40. We intend to fight this one very hard using all the external/independant help we can get. As you are all aware our big exposure with the rate case was that the much needed substantial increase in liquids tariffs would not be approved and we would be subjected to some form of arbitary cut. This has not happened SIRESE has now approved and hence owns these substantial increases. Having got the big hike our job is now to claw back as much as we can from the above strategy in the full knowledge that the results of these efforts will be much smaller and hence managable increases. Attached is an analysis of the individual impacts on the tariff of the above points and the corporate model using the new tariff with our volume assumptions (i.e. the worst case). Regards, Doug