Subject: Re: CIAC
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Wed, 13 Sep 2000 02:22:00 -0700 (PDT)

Thanks Robert, this is a big help.
Just wondering -- you make the statement that "El Paso is not directing TW to 
build the interconnect facilities..."  Do you think that our having an 
interconnect agreement outlining the specifications for the facilities and 
setting forth certain indemnities weaken our position at all in terms of 
saying this is not a CIAC?  

Robert Guthrie
09/13/2000 08:05 AM
To: Susan Scott/ET&S/Enron@ENRON
cc: James Centilli/ET&S/Enron@ENRON 

Subject: Re: CIAC  

I can only address this from the tax position.  Books may differ from the 
noted treatment depending on the true facts.  I have a call to James Centilli 
for his thoughts.  I also have not reviewed any written language, so this is 
based on our conversations; therefore the facts may change depending on the 
final arrangement.

Based on my understanding, the meter fee will be structured as a fee paid to 
TW for services and not to build the interconnect facilities.  Because El 
Paso is not directing TW to build the interconnect facilities TW will not 
record these fees as a CIAC for tax.  In short, the management fee is just 
normal operational type revenue.  The benefit to El Paso is that they avoid 
the gross-up because this payment does not fall under the guidelines of IRS 
Code Section 118 (b).  However, please note that the management fee is still 
taxable to TW in the year actually received or deemed received.   It is just 
not classified as a CIAC for tax purposes.  

The potential book benefit to TW is that the interconnect facilities built 
should be allowed as part of rate base because the assets were built by TW 
and not contributed from El Paso -- I have a call to James Centilli to 
confirm.

Clarification on CIAC ( IRC 118(b)).  This is a code section that governs for 
tax only how payments received from customers or potential customers for 
services that benefit the customer are treated for tax purposes.  For tax,  
the money received is recognized in the year received or deemed received, and 
the asset is depreciated, normally 15 years, MACRS.  The Gross-up paid is the 
time value of money over the life of the asset and is paid by the customer 
requesting the service.  

The Management fee structure will generate the same result as the CIAC for 
tax.  For tax, the money is received and taxed.  The money is then used 
indirectly to build the interconnect facilities that are deprecated over 15 
years, MACRS for tax.  The piece missing is that El Paso avoids the gross-up 
of approximately $50,000.  The $50,000 becomes a lost cost to TW for doing 
the deal with El Paso.  The lost cost should be off-set in part from rate 
recovery.  I don't know how this piece will work -- James Centilli should be 
able to confirm.

Let me know if we need to discuss further.  I am out of the office after 
12:30 today to return on Monday.  I will check my voice mail.  However, If 
you need to move on this or need additional help,  please call me on my 
mobile number (832) 647-4610.

   
	Enron Capital & Trade Resources Corp.
	
	From:  Susan Scott                           09/12/2000 05:27 PM

To: Robert Guthrie/Corp/Enron@ENRON
cc:  

Subject: CIAC

Robert, here is the beginning of a note I need to send to Drew Fossum 
explaining what we're doing with El Paso.  Can you elaborate on the "meter 
fee" approach?  

I'm not sure I really understand what keeps it from being a CIAC, and why we 
get to include it in the rate base.  

If you can add to this I would appreciate it, or just give me a call and we 
can discuss it further.  Thanks so much for your help.

***

El Paso Field Services wants TW to build interconnect facilities.  Estimated 
cost:  $280,000.  EPFS will contribute $165,000 pursuant to an interconnect 
agreement.  The Commercial Group would like to avoid the tax gross-up 
associated with a contribution in aid of construction.  The Internal Revenue 
Code expressly provides that contributions in aid of construction and other 
contributions made by a customer or potential customer (collectively, 
"CIACs") are not contributions to capital and thus are not excluded from 
gross income.  Accordingly, such amounts are required to be included in gross 
income.  

EPFS has proposed, instead of the $165,000 being paid in a lump sum, that the 
contribution instead be paid in equal monthly installments as a "meter fee."  
Our tax department has advised me that while this approach does not absolve 
TW from tax liability on that revenue, it does have a couple of advantages.  
It would remove the contribution from the CIAC category (why is it not a 
CIAC?)and TW would be allowed to include it in its rate base.  Additionally, 
TW would be allowed to treat the interconnect facilities as a depreciable 
asset.