Subject: TW Options Update: Dynegy meeting
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked]
Date: Thu, 17 Aug 2000 04:27:00 -0700 (PDT)

Yesterday Jeff Fawcett, Lee Ferrell and I met with Dynegy marketing and 
legal/regulatory representatives regarding TW Transport Options.  Overall the 
meeting was very positive.  We had nothing but encouraging remarks from the 
marketing representatives.  However, the regulatory people (Sarah Tomalty, Ed 
Ross) had a couple of issues.  The biggest issue is a marketing affiliate 
concern.  Apparently Dynegy is on a crusade at FERC to place further limits 
on deals pipelines can do with their marketing affiliates.  They have run 
into situations in which pipelines (examples:  Koch, El Paso) have blatantly 
favored their marketing affiliates to the extent that Dynegy cannot even do 
deals with them.  (In fact, one of the problems with Koch has been Koch's 
price option deals with its affiliate.)  The perception is that the 
affiliates, by using "funny money," can always make themselves the highest 
bidder, with a net benefit to the entire organization (pipeline + 
affiliate).  The remedy Dynegy is proposing is to require a marketing 
affiliate, if it is the highest bidder, to credit back the difference between 
the price it pays and the price offered by the next highest bidder.  The 
presumption is that the affiliate has an unfair advantage because it is able 
to pay above market value in order to get the capacity.   Dynegy's proposal 
would encourage affiliates to pay "real" dollars.  

While it emphasized its belief that TW does not favor its marketing 
affiliates, Dynegy would like for us to include in our filing some limitation 
on options transactions with marketing affiliates.   It is likely that other 
pipelines will file for the ability to sell options once FERC approves our 
filing, and Dynegy would like for this type of protection to be part of the 
precedent set by our filing.  Ed hinted that FERC may be considering a 
divestiture requirement for marketing affiliates, and that pipelines can 
avoid this extreme result by voluntarily limiting their transactions with 
affiliates.  Shelley, I know you've discussed this issue with Ed already and 
our reactions were the same.  Basically we politely told Dynegy that we don't 
believe we're part of the problem and that we are therefore not inclined to 
unnecessarily disadvantage our company by further limiting ENA's ability to 
do business with TW.   We can probably expect an intervention with comments 
or a limited protest addressing the issue.

The other regulatory question was whether we intend to file each option deal 
as a negotiated rate.  My analysis of this issue is that since we're 
proposing the option fee as part of the transport rate, options would always 
be a type of negotiated rate and would need to be filed.  If you think this 
is not the right answer, please let me know because we need to decide it 
before we file the tariff sheets.  Sarah's question seemed to be more one of 
curiosity rather than a basis for protest.

Like the Indicated Shippers, Dynegy appeared interested in an all-customer 
meeting to discuss the service.  Jeff and the rest of the commercial group 
are looking further into whether and when we would have such a meeting. 

If you have any questions or concerns please let me know.