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Kim Ward, Manager West Gas Origination September 26, 2001

El Paso Pipeline Transportation Proposal. Prepared for: City of Santa Clara Privileged and Confidential. Kim Ward, Manager West Gas Origination September 26, 2001. Table of Contents. General overview: scope of proposal Supply/load portfolio: City of Santa Clara

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Kim Ward, Manager West Gas Origination September 26, 2001

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  1. El Paso Pipeline Transportation Proposal Prepared for: City of Santa Clara Privileged and Confidential Kim Ward, Manager West Gas Origination September 26, 2001

  2. Table of Contents • General overview: scope of proposal • Supply/load portfolio: City of Santa Clara • ENA transportation capacity proposal • Benefits of ENA proposal • Next steps • Due diligence • Posting procedures • Appendix • El Paso tariff sheet

  3. General Overview • ENA has reviewed the current economics related to transportation and concluded that there is an opportunity for in-state PG&E customer load to acquire physical transportation on EPNG at full tolls (or better) which provides: • Transportation at market based rates • Flexibility to manage price risk by purchasing gas at supply region versus market region • Avoid long term demand charges by entering into open seasons for 10-15 years when shorter dated capacity is available • Create optionality • We have reviewed Santa Clara’s load and, based on current and future requirements (3,000 MMBtu/d increasing to 20,000 MMBtu/d), the Enron capacity being discussed provides an excellent fit: • the City of Santa Clara completes the construction of its 110 MW generation asset (start date Q2’03?) • Santa Clara can control its gas supply by integrating upstream transportation from the supply pools • This capacity is PG&E recallable (Block II) with primary receipt points of San Juan, Permian, and Anadarko, which will be re-designated to a 60% San Juan/40% Permian primary receipt point allocation (as per upcoming FERC orders)

  4. City of Santa Clara:Supply/Load Portfolio The ENA capacity is designed to fit Santa Clara’s supply shortfall beginning in 2003 as the Redwood capacity expires and the 110 MW facility comes on Proposed EPNG Capacity from ENA Estimated load for Santa Clara’s new generation asset in 2003: 110 MW x 8.5 MMBtu/MWh x 24 hrs/day 22,440 MMBtu per day Physical supply short continues Redwood Capacity of 6,000 MMBtu/d expires in Dec 2002

  5. ENA Transportation Proposal Benefits: • Definitive start date customized for customer needs • Short dated firm obligations: • ENA capacity expires May 31, 2006 and you hold the renewal rights. The optionality of this expiration window could be significant. • Compared to open seasons that the industry just went through and the obligations recently committed to, this capacity is a premium transportation product.

  6. ENA Transportation Proposal (cont’d) • Receipt point service will be diversified – 60-70% San Juan and 30-40% Permian • Regulatory uncertainty with El Paso is going to continue to prohibit any real expansions of the pipe until FERC issues regarding fuel requirements, CD shipper rights, and receipt point allocation are resolved (estimated to be February 2002). • ENA will pay either an up-front lump sum payment or an annuity payment, depending on customer preference (based on fair market value at the time of transaction). • Customer has option at the time of transfer to appoint ENA as agent to conduct operational and accounting services: • Nominations at reciept points • Pipeline nominations • Daily balancing • Consolidated statement – pipeline, payables, receivables

  7. Transportation Supply Paths Kingsgate PGT NWPL Malin PG&E Redwood Opal Santa Clara PG&E Baja San Juan Basin El Paso Topock El Paso Permian Basin

  8. Historical San Juan/Permian vs Topock

  9. Historical Transportation Economics • This capacity, since Jan 2000 through Sep 2001 would have been in the money 68% of the time and saved approximately $15-17 million (daily vs daily) on the 20,000 MMBtu/d we are discussing • Even though current economics, tolls vs market, are at the money, this capacity offers the buyer access to low cost supply and lower volatility supply with minimal downside risk

  10. Forward Value of EPNG Transportation The earlier the start date, the larger the lump sum payment can be (based on current economics).

  11. Forward Value of EPNG Transportation The earlier the start date, the larger the lump sum payment can be (based on current economics). Present Value of 20,000 MMBtu/d of Capacity Start Date

  12. Next Steps • Definitive Agreement is raised (term, volume, economics) • Customer conducts due diligence with EPNG/PG&E • Credit approved with pipe • Customer & EPNG review pipe tariff, recall right obligation, renewal rights • Posting procedures • ENA posts capacity on bulletin board with all terms & conditions

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