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.
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answer: TW Options update
Mark, I was talking to Jay on Friday and he was telling about Kerr McGee shutting down their operations. Is there any play here for you guys.? BT
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answer: Kerr McGee/ Cinergy Structure
Attorney Work Product/Not Discoverable Top Legal Risks 1. Power Forms - Trading contracts in the power industry are very weak. Typical problems include, trading under multiple masters, no liquidated damages for non-delivery, no events of default or calculation of termination damages, broad performance outs. 2. Agency - Several of our major trading partners operate through an agent acting on behalf of several operating companies. This creates uncertainty as to which entity is liable for which trades. 3. Municipalities - Difficult authorization issues associated municipalities. 4.Complexity of transactions - Power transactions can be very complex as a result, in part, of difficult delivery mechanics and volatile pricing. 5.Timing of transactions - Power transactions typically must be completed on a very tight time schedule. 6. Lawyer Training - Difficult, time consuming process to train lawyers on how to document transactions involving power. 7.Process for approval of transactions - Uncertain procedures for making sure everybody understands risks associated with transactions. Documentation Projects 1. EEI - cont'd work to make EEI the trading contract for power/lessen reliance on WSPP. 2. One-off Power Form - creation of contract to be used for individual transactions that are not part of a master. 3. Product Definition - cont'd work on creating/building acceptance for power product definitions. 4. Platform Trading - Encourage use of EEI as trading platform for all e-trading. 5. Single master contract for all physical commodities/financial trading - work with ISDA to develop single contract for physical trading and then roll that into single contract for physical and financial trading
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answer: Quarterly Legal Review -Power
Sorry I couldn't make it for cake last night. I had to work late last night...Big Shock!!! Anyway, hope it was fun and that you're having a great week. Mine has been pretty busy work wise. I'm sure you're curious about Mr. Noble. All I can say right now is that, while I definitely still like him (we had a great time Sunday), I am some what annoyed with him right now...he's been very wishy-washy the first half of this week. I'm not real sure what I'm going to do about it, but I'm sure I'll think of something.
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answer:
Absent friend...