Danny,

Here's our comments-

Paragraph 1
ANNGTC's FERC Form 2 filing says that they have received rate base approval for approx. $470 million of past investment (not including AFUDC).  It is unclear how the total cash investment of the withdrawn partners relates to the $470 million number in the Form 2. 

We acknowledge that releasing any and all potential claims against the ANNGTC Partnership is an important principle to adopt to secure commercial commitments from the ANS Producers.  In principle, we are prepared to release claims for the accrued AFUDC component but are not prepared to release claims for the $470 MM of past investment because regulators may allow a recovery mechanic, which could present future upsides to the Withdrawn Partners.  We thus propose to modify this principle to provide for the inclusion of the $470 MM, but specifically exclude the AFUDC component.  Ultimately, the toll for transport services will result through negotiations with the ANS Producers, and their concerns can be addressed by expressly excluding surcharges/other regulatory mechanics approved by the regulators for the initial investments.

Par. 1, footnote **
Each ANS Producer that joins will cause the Current and Rejoining Partners' interests to be reduced pro rata, irrespective of when the new partners join.  We should discuss limits on the rights of new partners to join, or a limits on the dilution.  Section 5.2.1 of the partnership agreement sets out a mechanism that discounts the percentage interest acquired by a new partner depending on how long after initial formation that partner joined.  If that mechanism is still in effect, any ANS Producer who joins will face the unpleasant surprise that his interest will immediately be discounted by 15%.

Paragraph 2a
We have no information supporting $10 MM of costs incurred by TCPL-USA and UAFC-Foothills for 2000 and 2001.  The language is ambiguous on what will happen to the "costs incurred by TCPL-USA and UAFC-Foothills prior to 2000."  How much money did they spend and are they offering to write it off?  Does our payment of our pro rata share of the $10 million permanently absolve us of responsiblity for those costs or have they been buried in the accounts of the partnership somewhere?

Paragraph 2b
The idea of a "success payment" implies that an entirely new set of customers for the pipeline will be found and new contracts executed.  At one time Northern Natural was a shipper and we believe may have signed a precedent agreement or binding contract (we think the original partners agreed to also contract as customers).  We haven't seen the agreements, but assume they are dead.  If not, we need to kill them. 

Enron believes it is inappropriate for TCPL-USA and UAFC-Foothills to obtain a success payment/distribution equal to US$40 MM.  The parents of both companies will enjoy the benefit of increased revenues resulting from volume flows on B==>C segments owned by themselves, which should be a significant financial incentive.

[NB: We could advance the idea of asking for an option on participation on the B-C leg next week if Foothills and TCPL won't back off on demanding the $40 million.  I'd prefer not to put this in writing yet.]  

Paragraph 3
While we would like to to preserve the potential ability of the Partnership to seek to include the entire balance of capital contributions plus AFUDC/interest in rate base, since that is almost US $4b, doing so would crater the project's economics.  Instead, preserving just the project's ability to include in rate base the $470 MM that FERC has already blessed may be a more reasonable amount and also have the benefit of prior FERC approval.  

Paragraph 4
A Rejoining Partner who subsequently withdraw should be allowed to recover its capital contributions without interest/AFUDC at some future date, preferably the first day of commercial operations.  New Percentage Interest will revert to all partners in proportion to their respective current percentage interests.

Paragraph 5
Enron would like to eliminate this principle.  It would be appropriate for change of control principles to be developed.

Paragraph 7
Please clarify the principles in which the Partnership Agreement will be amended in order to "modernize" provisions for the management of the ANNGTC Partnership.

Paragraph 8
We couldn't find "equalizing partners" referenced as a defined term so we're not sure what this paragraph is talking about.  It might be referring to the "Additional Capital" provisions of Par. 12, but that's just a guess.  

Paragraph 10
Enron can not agree to the principles in a) and b)

Paragraph 11
William's acquisition of NAPC introduces a material change in control and needs to be discussed.  The size of ANNGTC is such that it could hire its own pipeline operating management and staff in Alaska.

[NB: We need to determine when William's acquired control of NAPC.  Drew is investigating.]

Paragraph 14
We'd like to take this out of whatever MOU we end up signing for the same reason we took it out of the confidentiality agreement.  This is just a paraphrase of the withdrawing partner provisions of the Partnership Agreement, coupled with some speculation about what might happen 5 or more years from now.  It doesn't need to be in the MOU.  The only thing this language accomplishes is potentially exposing us to an argument that we waived some rights or were on notice of some claim or position if we end up in a fight with Foothills, TCPL or the Partnership.  

Balance of MOU
Ok.