From: drew.fossum@enron.com
To: susan.scott@enron.com
Date: 2000-01-04 10:18:00+00:00
Subject: The El Paso Controversy Continues

Re:  ENA El Paso deal.  The trade press is having a heyday with the 
"anticompetitive" angle.  Lets talk.  DF
---------------------- Forwarded by Drew Fossum/ET&S/Enron on 01/04/2000 
10:17 AM ---------------------------
ET & S Business Intelligence
From: Lorna Brennan on 12/30/99 09:18 AM
To: Bill Cordes/ET&S/Enron@ENRON, Julie McCoy/ET&S/Enron@ENRON, Lou 
Geiler/ET&S/Enron@ENRON, Tim Aron/ET&S/Enron@ENRON, Steve 
Klimesh/ET&S/Enron@ENRON, Sarabeth Smith/ET&S/Enron@ENRON, Gary 
Sova/ET&S/Enron@ENRON, Rob Wilson/ET&S/Enron@ENRON, Lon 
Stanton/ET&S/Enron@Enron, Margaret Carson/Corp/Enron@ENRON, Rita 
Hartfield/Corp/Enron@ENRON, Rockey Storie/ET&S/Enron@ENRON, Stephanie 
Miller/ET&S/Enron@ENRON, Kent Miller/ET&S/Enron@ENRON, John 
Dushinske/ET&S/Enron@ENRON, Dave Neubauer/ET&S/Enron@ENRON, Michael 
Bodnar/ET&S/Enron@ENRON, Joni Bollinger/ET&S/Enron@ENRON, David 
Badura/ET&S/Enron@Enron, Janet Bowers/ET&S/Enron@ENRON, Craig 
Buehler/ET&S/Enron@ENRON, Bob Burleson/ET&S/Enron@ENRON, Allen 
Cohrs/ET&S/Enron@ENRON, John Fiscus/ET&S/Enron@ENRON, Bret 
Fritch/ET&S/Enron@Enron, Steve Gilbert/ET&S/Enron@ENRON, Morgan 
Gottsponer/ET&S/Enron@ENRON, Brenda Harris/ET&S/Enron@ENRON, James 
Harvey/ET&S/Enron@ENRON, Stephen Herber/ET&S/Enron@ENRON, Dana 
Jones/ET&S/Enron@ENRON, Jane Joyce/ET&S/Enron@ENRON, Stephanie 
Korbelik/ET&S/Enron@ENRON, Therese Lohman/ET&S/Enron@ENRON, Bill 
Mangels/ET&S/Enron@ENRON, Penny McCarran/ET&S/Enron@ENRON, Vernon 
Mercaldo/ET&S/Enron@ENRON, Larry Pavlou/ET&S/Enron@ENRON, Eileen 
Peebles/ET&S/Enron@ENRON, Maria Perales/ET&S/Enron@ENRON, Tony 
Perry/ET&S/Enron@Enron, Loren Penkava/ET&S/Enron@ENRON, Ken 
Powers/ET&S/Enron@ENRON, Joan Schwieger/ET&S/Enron@ENRON, Chris 
Sebesta/ET&S/Enron@ENRON, Frank Semin/ET&S/Enron@Enron, Neal 
Shaw/ET&S/Enron@ENRON, Larry Swett/ET&S/Enron@ENRON, Kay 
Threet/ET&S/Enron@ENRON, Mike Ullom/ET&S/Enron@ENRON, Lisa 
Valley/ET&S/Enron@Enron, Chuck Wilkinson/ET&S/Enron@ENRON, Jim 
Wiltfong/ET&S/Enron@ENRON, Jo Williams/ET&S/Enron@ENRON, Karen 
Lagerstrom/ET&S/Enron@Enron, Ray Stelly/ET&S/Enron@ENRON, Bob 
Stevens/ET&S/Enron@Enron, Sue M Neville/ET&S/Enron@ENRON, Mike 
Barry/ET&S/Enron@ENRON, Miriam Martinez/ET&S/Enron@ENRON, Martha 
Janousek/ET&S/Enron@ENRON, Kimberly Watson/ET&S/Enron@ENRON, Don 
Powell/ET&S/Enron@ENRON, Melinda Tosoni/ET&S/Enron@ENRON, Steve 
Weller/ET&S/Enron@ENRON, Michael G Stage/ET&S/Enron@ENRON, Tim 
Johanson/ET&S/Enron@ENRON, Mike McGowan/ET&S/Enron@ENRON, Steven 
Harris/ET&S/Enron@ENRON, Lindy Donoho/ET&S/Enron@ENRON, Jeffery 
Fawcett/ET&S/Enron@ENRON, Lorraine Lindberg/ET&S/Enron@ENRON, Kevin 
Hyatt/ET&S/Enron@Enron, Christine Stokes/ET&S/Enron@ENRON, Drew 
Fossum/ET&S/Enron@ENRON, Lee Huber/ET&S/Enron@ENRON, Maria 
Pavlou/ET&S/Enron@ENRON, Mary Kay Miller/ET&S/Enron@ENRON, Glen 
Hass/ET&S/Enron@ENRON, Donna Fulton/Corp/Enron@ENRON
cc:  
Subject: The El Paso Controversy Continues

Enron-El Paso Deal Could Mute Competition to CA

     Fearing an end to pipeline competition in California, the state's 
regulators and Indicated
     Shippers have called on FERC to summarily reject the three 
transportation agreements by
     which Enron North America Corp. has contracted for 1.25 Bcf/d of 
unsubscribed firm
     capacity on El Paso Natural Gas. 

     Approval of these agreements would give Enron Corp., parent of 
Transwestern Pipeline
     and Enron North America, control over all the available transportation 
capacity to the
     southern California border, warned Harvey Morris, principal attorney for 
the California
     Public Utilities Commission (CPUC), which plans to submit its protest 
today. Between
     the two pipelines, he estimated Enron will control 2.34 Bcf/d of firm 
capacity from the
     San Juan and Permian basins to California. 

     For Morris, Enron North America's contracting of the El Paso capacity 
represents a
     worse threat to the pipeline's other shippers than Dynegy Marketing and 
Trade, who has
     held the capacity for past two years and whose contract expires Dec. 31. 
"At least then
     there was some Transwestern competition to the Dynegy situation. Now 
it's Enron, the
     owner of Transwestern, who's stepping into Dynegy's shoes." 

     But "what's even worse," he told NGI, is the revenue-sharing provision 
in the contracts. It
     stipulates that "after Enron makes $35 million off of these contracts, 
it has to share the
     proceeds with El Paso for 25% of anything beyond $35 million. So 
effectively, Enron and
     El Paso have become partners in how high they can jack up the 
transportation rate
     differential between the California border and the Southwest producing 
basins." 

     The two pipeline companies "that have for decades competed with each 
other in carrying
     Southwest supplies to California are now partners. We think that's 
anticompetitive, and
     there's no way FERC should approve it," Morris said. He recalled the 
basis differential
     between the San Juan Basin spot price and the California border shot up 
by 17% during
     1998, the first year during which Dynegy controlled the El Paso capacity 
into California.
     This situation could worsen under Enron, he believes. 

     "At first blush the El Paso-Enron contracts [do] not appear to contain 
the same
     anticompetitive features of the El Paso-Dynegy contracts," Indicated 
Shippers noted, but
     a "closer review and analysis" reveals the anticompetitive effects of 
the revenue-sharing
     provision (RSP) in El Paso-Enron contracts "are not only similar" to 
those of the hotly
     contested reservation-reduction mechanism (RRM) in the El Paso-Dynegy 
case, "but are
     increased......due to the fact that the contracts are with a marketing 
affiliate of El Paso's
     primary interstate pipeline competitor," Transwestern. 

     Both the RRM and RSP "operate to provide a disincentive for El Paso and 
its competitors
     to compete against each other, or to take any other action that will act 
to drive down the
     basis differential that defines the market value of the capacity," 
Indicated Shippers told
     FERC in a protest filed on Wednesday [RP97-287-041]. The group includes 
producers
     Amoco Production, Burlington Resources Oil and Gas, Marathon Oil, and 
Phillips
     Petroleum, and two marketers - Amoco Energy Trading and Phillips Gas 
Marketing. 

     FERC "should reject the tariff filing immediately. The Commission erred 
in allowing the
     El Paso-Dynegy contracts to remain intact for their two-year term after 
finding that the
     contracts were anticompetitive. This issue is pending in the [D.C. Court 
of Appeals].
     That same error should not be repeated here," the producers and 
marketers said. 

     The CPUC's attempt to block the Enron-El Paso contracts at the outset is 
a little bit
     unusual for the agency, Morris said, but it learned its lesson following 
Dynegy. "When the
     Dynegy situation first hit, we asked for FERC to investigate the matter. 
We thought
     FERC did a very inadequate job then.....This time around we're asking 
for FERC to
     summarily reject it. It's hard for an agency like ours to take such a 
strong stand right at
     the beginning, but we've learned too much from two years of suffering 
under the Dynegy
     situation. And this is even worse." 

     In the event the Commission should reject California's request, the CPUC 
has asked that
     an "anti-hoarding condition" be included in the contracts, which would 
require Enron to
     release unused capacity into the short-term market at a price higher 
than what it's paying
     El Paso for the capacity. "They must make a little profit," Morris 
noted. "We're confident
     Enron can't use the entire 1.2 Bcf/d of capacity.....so there's going to 
be unused
     capacity." 

     The agency also wants FERC to clarify that the primary delivery point 
for the Block II
     portion of the capacity (579MMcf/d) is PG&E-Topock in keeping with the 
terms of the
     1996 settlement between El Paso and its customers. Morris said he agreed 
fully with
     Amoco, Burlington Resources and Southern California Gas (SoCalGas), 
which accused
     El Paso of violating the 1996 agreement by allowing Dynegy to use 
SoCalGas-Topock as
     a primary delivery point for the Block II capacity last summer. They 
contend the alleged
     violation is included in the Enron contracts. 

     He also noted the CPUC will challenge the ability of Enron to call back 
Block II capacity
     after it already had been recalled by El Paso shippers to serve Pacific 
Gas and Electric
     (PG&E) customers in northern California. Last July, FERC granted Dynegy 
the right to
     do this under its contracts with El Paso. But Morris contends the 
decision violates the
     1996 settlement under which PG&E paid $54 million to preserve the right 
of the pipeline's
     shippers to recall the Block II capacity to serve end-users in its 
service territory. 

     The CPUC also intends to challenge the Commission's decision that would 
enable Enron
     to "just sit on the capacity," thereby withholding idle Block II 
capacity from the market.
     Indicated Shippers also contend the Enron contracts violate the Block II 
capacity
     provisions of the 1996 rate case, as well as "exacerbate" the primary 
firm delivery point
     capacity-allocation issues that are pending before FERC now. 

     The CPUC accused El Paso of "deliberately" filing the Enron contracts at 
FERC just
     before the holidays to avoid controversy. The pipeline "is trying to 
sneak one of the most
     controversial things ever past FERC right before Christmas so that 
protests would be
     minimized," said Morris. "They did this with the Dynegy contracts two 
years ago. They
     have a pattern of filing right at the last minute, making it harder for 
people to protest and
     harder for FERC to stop it from going into effect." 



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