Message-ID: <10026060.1075846670671.JavaMail.evans@thyme> Date: Mon, 31 Dec 1979 16:00:00 -0800 (PST) From: susan.scott@enron.com Subject: Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Susan Scott X-To: X-cc: X-bcc: X-Folder: \Susan_Scott_Dec2000_June2001_1\Notes Folders\All documents X-Origin: SCOTT-S X-FileName: sscott3.nsf Transwestern held its Transport Options Workshop on August 31. Commercial and regulatory representatives of BP-Amoco, Burlington, Conoco, Coral, Dynegy, Phillips and Reliant attended. After a brief overview of the proposed filing, TW opened the floor for questions and comments. Here is a summary of the comments. Marketing affiliate concerns. BP's regulatory representative expressed concern that TW's marketing affiliates would be able to use options to game the system. In BP's example, since TW and ENA are both Enron companies, ENA could purchase an "out of the money" call option essentially cost free, since its affiliate (TW) would have the ability to buy the option back. Proceeds from ENA's ability to then "move the market" through the establishment of the long basis position would go directly to Enron's bottom line. BP suggested that TW's marketing affiliates be banned from purchasing options, or that the marketing affiliate be required to credit 100% of the option proceeds to other shippers. Although BP admits that Transwestern's prior dealings with ENA have not been suspect, BP fears that TW's filing will set a precedent for other pipelines to offer a similar service. Since TW will be the first pipeline to offer such services, BP wants TW's program to be as restricted as possible. Dynegy echoed BP's concern regarding possible affiliate abuse, but rather than shelve the program entirely, Dynegy reiterated an earlier suggestion that Transwestern be required to credit back the difference between the option fee paid by an affiliate and the next highest bidder, if the affiliate's bid exceeds the next highest by a certain percentage. TW's response was that while actual abuse of an options program by a marketing affiliate may be a legitimate concern, owing to its unassailable record in this area, TW should be entitled to a presumption that it has complied and will continue to comply with Commission policy covering the sale of capacity to marketing affiliates, and was not inclined to voluntarily include any limitations on the options program. If BP and others have serious concerns regarding the Commission's overall policy on marketing affiliates, those issues should be raised in a separate proceeding that applies to all interstate pipelines. Right of first refusal. Burlington asked whether options would replace the right of first refusal. TW's response was that ROFR will still be available pursuant to the terms and conditions of our tariff. Negotiated rate. BP's representative claimed that option contracts will constitute a negotiated rate and that each deal will need to be filed as such. TW did not respond to this or discuss it further. However, TW's position at this point is that since the option fee is part of the transportation rate, transportation deals that include the option amendment will only be considered negotiated rate deals if the total rate including the option fee exceeds the maximum transport rate. Hoarding capacity. Using the recent large block sale of capacity on El Paso as an example, several customers expressed concern that the options program would make it easier for a shipper to hoard capacity. It was not clear why some of the workshop participants thought that the sale of options would create more opportunity for hoarding capacity than already exists. Perhaps because the option fee is a lesser cost than the transport rate for the underlying capacity, their perception was that options would simply make hoarding cheaper and easier. TW acknowledged that the potential for withholding capacity from the market is one reason for FERC's current policy against reserving capacity for shippers. Although TW did not commit to placing any limits on the either the quantity of capacity or options for capacity that any one shipper may own, it is possible that FERC may require TW to do so in a final order. Our plan is to meet with PG&E and SoCalGas in California the week of September 11 to go over details of the program, and to finalize the FERC filing by mid-September. From: Susan Scott 09/01/2000 11:31 AM To: Jeffery Fawcett/ET&S/Enron@ENRON cc: Subject: Draft: Summary of TW Options Workshop Jeff -- since most of Teddy's comments were over my head yesterday, I could use your help on that part of the discussion. *** Transwestern held its Transport Options Workshop on August 31. Commercial and regulatory representatives of BP-Amoco, Burlington, Conoco, Coral, Dynegy, Phillips and Reliant attended. After a brief overview of the proposed TW Options filing, we opened the floor for questions and comments. Here is a summary of the comments. Marketing affiliate concerns. BP's regulatory representative expressed concern that TW's marketing affiliates would be able to use options to game the system. For example, since TW and ENA are both Enron companies, if ENA buys a call option it is essentially a free option. ENA could buy a call out of the money and we could buy it back from them, with the proceeds going to Enron's bottom line. BP suggested that TW's marketing affiliates be banned from purchasing options, or that the marketing affiliate be required to credit the call money to other shippers. BP's concern is that TW's filing will set a precedent for other pipelines to offer a similar service, so they want TW's options program to be as restricted as possible. Dynegy reiterated its suggestion that the marketing affiliate be required to credit back the difference between the option fee paid by the affiliate and the next highest bidder's bid, if the affiliate's bid exceeds the next highest bid by a certain percentage. Our response was that while actual abuse of an options program by a marketing affiliate would be a concern, we feel that TW is entitled to a presumption that it has complied and will continue to comply with the rules on sale of capacity to marketing affiliates. At this point we are not inclined to voluntarily include any limitations on the options program. If BP and others have issues regarding Commission marketing affiliate policy in general, those issues should be addressed in a different proceeding that pertain to all interstate pipelines. Right of first refusal. Burlington asked whether options would replace the right of first refusal. Our response was that ROFR will still be available pursuant to the terms and conditions of our tariff. Negotiated rate. BP's representative claimed that options will constitute a negotiated rate and that each deal will need to be filed as such. We did not respond to this or discuss it further. However, TW's position at this point is that since the option fee is part of the transportation rate, the deals will only be negotiated rate deals if the total rate exceeds the maximum rate. Hoarding capacity. Several customers expressed concern that the options program would make it easier for a shipper to hoard capacity. It was not clear why they thought that options would create more opportunity for hoarding than already exists. Their perception was that options would simply make hoarding cheaper and easier. We acknowledged that the potential for withholding capacity from the market is one reason for FERC's current policy against reserving capacity for shippers. Although we did not commit to placing any limits on the quantity of capacity for which a shipper may purchase an option, it is possible that FERC may require us to do so. Our plan is to meet with PG&E and SoCalGas in California to elicit their comments, and finalize the FERC filing by mid-September.