Message-ID: <3992198.1075848080102.JavaMail.evans@thyme> Date: Tue, 11 Apr 2000 06:29:00 -0700 (PDT) From: becky.merola@enron.com To: harry.kingerski@enron.com Subject: FYI....Risk Mangaement/ potential base rate changes behind Ohio Gas Utilities Cc: steven.kean@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, janine.migden@enron.com, susan.landwehr@enron.com, roy.boston@enron.com, kerry.stroup@enron.com, lynnette.barnes@enron.com, elizabeth.linnell@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: steven.kean@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, janine.migden@enron.com, susan.landwehr@enron.com, roy.boston@enron.com, kerry.stroup@enron.com, lynnette.barnes@enron.com, elizabeth.linnell@enron.com X-From: Becky L Merola X-To: Harry Kingerski X-cc: Steven J Kean, Richard Shapiro, James D Steffes, Janine Migden, Susan M Landwehr, Roy Boston, Kerry Stroup, Lynnette Barnes, Elizabeth Linnell X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf Introduction Yesterday afternoon I met with executives from Columbia of Ohio, the Ohio Manufacturers Association and Honda of America Manufacturing and discussed a property tax bill that COH, EOG, Ohio's Counties and the schools wish to introduce tomorrow through the Senate Ways and Means Committee. They are expecting their sponsors to be Senators Blessing and Motley. They may also concurrently introduce the bill through the House Public Utilities Committee through Chair Lynn Olman or David Goodman. Columbia expects the first hearing to be May 2nd. When asked why the hurry...COH is in litigation concerning disparate treatment as it relates to taxes (they are currently in the Ohio appellate and believes if this bill goes forward they will be able to reach settlement with regards to the litigation before the court of appeals). The Judge is expected to come out with a ruling in May. However, if this legislation looks promising Columbia may very well reach settlement with the counterparties on the litigation prior to the courts ruling. (I believe the counterparty is the Ohio schools) I asked who they have discussed the bill with at this point and where they felt each party stood. Columbia said they have talked with Senator Finan (President of the Senate) (no problem of course), Rob Tongren, Ohio's Consumers Counsel (but they haven't met with the OCC staff to go over the detailed analysis of impacts based on revenue class), they have sent a copy over to the PUCO, Cinergy (who didn't think they had a problem) took it back for review, the IEU (Industrial Endusers of Ohio) said they weren't overly pleased but didn't say they would get in the way, the counties and the schools. They have not discussed this with DP&L. COH and EOG do not play well in the sandbox with DP&L and didn't feel they needed to give them a heads up. COH also met with the Department of Taxation. Although the Tax Department did not have any particular concerns as of yet they were concerned about what the electric utilities would want to do in light of what the gas utilities would have as a result. The Bill The bill only addresses property tax which is based on rate base revenues. It does not address gross receipts tax. At first glance and after my follow-up discussions with Columbia I would say that the bill does not have any disparate treatment between transporting customers and those on system supply. Any tax or corresponding base rate reduction would be treated the same for sales and transport. With that said , there is a base rate impact on different classes of customers and each utility will be effected differently due to the fact that they customers contribution to base rates revenues and allocation methodologies. Below please find the impacts as suggested by Columbia: Rate Class Columbia of Ohio (total yearly $ impact) East Ohio Gas new rate per mcf Cinergy Do not have Cinergy numbers as the computations were not provided Residential decrease ($.67) per year increase $.1532/mcf increase Commercial/GTS increase $9.59 per year increase $.0892/mcf for usage of up to 2000 mcf per year COH wasn't sure but felt it would most likely be an increase Industrial/LGTS increase $2,937.91 per year decrease (industrials that use over 2000 mcf over what they are currently contributing but a rate of $.0650 decrease Large Industrials with whom Columbia has flexed its distribution rates to $.25/LGTS increase: none Columbia will flex their rates down to $.13 to compensate for the tax increase so the impact is zero $.02/mcf for flexed rate customers decrease Columbia of Ohio and East Ohio Gas represent roughly 80 % of the states gas volumes. Rough estimate: with the reduction in the property tax rate from 88% to 25% this represents approximately $34 million dollars to Columbia based on their 1994 case in which their base rates were set and their tax obligation was roughly $53 million approx.)Section VIII of the bill discussed the corresponding reductions in base rates that will be made and discussed the allocation. If and when the legislation goes through, COH and EOG would file schedules with the PUCO. If the bill is passed as written the rate reductions would be effective 1/1/01 and the tax would become effective 7/1/01. For risk management and deal structuring purposes we will want to watch the bill carefully, as any changes made to allocation methodologies could have an impact on our business going forward. In addition, the bill originally has language that address the gross receipts tax on commodity in Ohio and we will want to make sure the utilities do not change their mind and insert gross reciepts language back in. I will be sending the supporting documents to Howard Petricoff, Dayem Khandker, Dennis Benevides, and Paul Tate. If you do not receive a copy of the bill or the computation sheets and would like a copy, please give me a call and I will send them.