1. Privileged and Confidential
El Paso Pipeline Transportation Proposal
Prepared for:
City of Palo Alto
Privileged and Confidential
Kim Ward, Manager
West Gas Origination
October 4, 2001

2. Table of Contents General overview: scope of proposal
Supply/load portfolio: City of Palo Alto
ENA transportation capacity proposal
Benefits of ENA proposal
Next steps
Due diligence
Posting procedures

3. General Overview
The current economics related to transportation provide an excellent opportunity for PG&E customers 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 avoiding having to enter into open seasons for years when shorter dated capacity is available
Create optionality to the City of Palo Alto
Based on the City of Palo Alto’s requirements, the capacity being discussed provides an excellent fit as:
Palo Alto can control its gas supply from wellhead to burner tip by integrating upstream transportation from the supply pools
the City of Palo Alto may invest in power generation requiring additional natural gas supply
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 70% San Juan/30% Permian (est.) primary receipt point allocation (as per upcoming FERC orders)

4. City of Palo Alto: Supply/Load Portfolio
Proposed EPNG Capacity from ENA (10,000 MMBtu/d)
Redwood Capacity of 6,090 MMBtu/d expiring in Dec 2002

5. Transportation Supply Paths
Kingsgate
PGT
NWPL
Malin
PG&E Redwood
Opal
Palo Alto
NWPL
PG&E Baja
San Juan Basin
El Paso
Topock
El Paso
Permian Basin

6. ENA Transportation Proposal
Volume: 6,000 – 12,000 MMBtu/Day (TBD)
Term: January 1, 2003 through May 31, 2006
Delivery Point: PGE Topock (Block II)
Receipt Point: 70% San Juan/30% Permian (estimated as per FERC order)
Tolls: $.47 US/MMBtu (see attached)
Other:
I) Renewal Rights: Customer must provide six months notice to exercise ROFR rights. Option to terminate or renew at the lesser of max rate total or market rates
II) Re-call rights: PG&E holds rights to re-call capacity from shipper
--Please refer to EPNG for all rules related to re-call
III) Gas Supply: ENA is prepared to offer gas supply at any supply point for term
IV) Daily Balancing requirements: Balancing provisions to be ratified as part of commercial terms

7. EPNG Tolls and Fuel Assumptions
Assumptions/Notes:
Tariff (Demand and Commodity Charges) as per El Paso posted tariff rates
Fuel= current fuel ratio
Fuel price= supply and fuel ratio
Reservation add-on of $.0574 included in demand charge. This charge drops off in 2004

8. 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.
Open Season
Term/Obligation
Demand Charges
Probability
Estimated Start Date
Southern Trails
15 years
$0.52
< 30%
May 2002
Ruby
$0.87
50/50
Late 2004
PGT
30/52 years
$0.42
90%
Nov. 2002/2003
TW – Red Rock
5/15 years
$0.68/$0.38
June 2002
TW – Sun Devil
$0.34
June 2005
Sonoran
20 years
$0.39
May 2004
Kern River
10/15 years
$0.70/$0.57
May 2003
El Paso (ENA)
3.5 years
$0.33
100%
Jan 2003

9. 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 receipt points
Pipeline nominations
Daily balancing
Consolidated statement – pipeline, payables, receivables

10. Historical San Juan/Permian vs Topock

11. Historical Transportation Economics
For the period Jan 2000 through Sep 2001, this capacity would have been in the money 68% of the time and saved approximately $ million (daily vs daily) on 10,000 MMBtu/d
This capacity offers the buyer access to low cost and lower volatility supply with minimal downside risk

12. Forward Value of EPNG Transportation
The earlier the start date, the larger the lump sum payment can be (based on current economics).
Jan 2003 Start Date

13. 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