Message-ID: <15630487.1075863330573.JavaMail.evans@thyme>
Date: Fri, 9 Mar 2001 19:39:00 -0800 (PST)
From: drew.fossum@enron.com
To: steven.harris@enron.com
Subject: RedRock
Cc: susan.scott@enron.com
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A couple of additional thoughts on this morning's conversation:=20
=20
1.  if we really think the next 6 or 8 months will sort out the takeaway an=
d receipt point capacity issues, why not bet the whole farm and try to hold=
 onto the whole 150 mm/d until next winter or fall and see if the perceived=
 value goes up?  We could tell Calpine "no" on their bid and hold them off =
for several months "negotiating" if that's what we thought would lead to th=
e best value.  I don't personally think this would be a prudent approach, b=
ut its where our logic leads in the extreme, so we'd better be prepared to =
explain why getting the bird in the hand from Calpine is smart. =20

2.  We'll research the question of whether we can reject any recourse bids =
that come in over the next 6-8 months if we decide to hold onto the 60 mm/d=
 for awhile.  I've thought about it a bit more and I'm pretty sure you're n=
ot going to like the answer.  First, FERC says we've got to have a recourse=
 rate in place for all capacity, new or old.  One reason is that there need=
s to be a max rate that applies to long term capacity releases.  We have th=
e option on new projects to go with the existing max tariff rate or a new i=
ncrementally designed rate.  We are going with the existing tariff rate on =
RedRock.  Fine, but that makes the existing rate the recourse rate for all =
purposes.  FERC's logic will be that TW could sell all of the RedRock capac=
ity at recourse rates (currently $.38) and never suffer a revenue shortfall=
 even if future rate cases reduce TW's overall rates, because the costs of =
all TW's facilities--including the new project--will be considered in the n=
ext rate case.  Think about it--our rates will only go down in the future i=
f the ENTIRE cost of service goes down.  We'd never "lose money" on RedRock=
, but we might not make as much as we could have made with an 15 year fixed=
 $.38 negotiated rate.

There is another  approach.  We could have Mavrix submit a binding bid righ=
t now for the 60 mm/d and just flat out sell it to them.  That would send a=
 pretty strong signal to the market that we are serious about deadlines.  T=
he downside of that aggressive approach is that it would get us into the sa=
me mess that El Paso finally got themselves out of, with Amoco, Dynegy and =
the whole gang beating the crap out of us.  I'm not to fired up about this =
approach for that reason.  I'll give you a call Monday after I've picked ou=
r best regulatory brains on these issues.  DF    