Southern California has become the latest hot spot for gaspipeline competition. Following the successful $50,000 bid twoweeks ago for Southern California Gas’ option to purchase (in 2012)the California portion of the Kern River Pipeline, Williams wastedno time in drawing up plans for Kern River’s first major extensionproject since going into operation in 1992.

The company announced an open season last week for a 150-milelateral extension to the City of Long Beach, CA. The new pipe wouldbe 24- or 30-inches in diameter and would be designed to carry aminimum of 300 MMcf/d.

Kern River had been spending a fourth year studying a possibleextension into the city when Questar snuck into Long Beach thissummer with an attractive proposal to convert an existing oil lineto flow gas. That signaled the need to stop talking and startacting, said Greg Snow, vice president of business development forWilliams Gas Pipeline-West, Kern’s parent company.

“I don’t look at it as if we’re getting into this late. We’vetalked to a lot of people about it. We’ve done preliminaryconstruction and environmental studies for alternate routes,identified a customer coalition. We’ve done a lot of ground workalready,” he said.

Gaining SoCalGas’s option also opened a window of opportunityfor the project, he added. SoCalGas was ordered by Californiaregulators to divest options to buy Kern and Mojave Pipeline Co.facilities as a condition of the merger between SoCalGas’ parentPacific Enterprises and Enova Corp.

“It took away some of the uncertainty. One of the reasons whycustomers might want to go over to a direct connect to aninterstate would be to avoid CPUC jurisdiction. If there was apossibility those facilities would revert back to the CPUCjurisdiction sometime in the future some customers might not wantto sign on,” Snow noted.

Long Beach, with a population of 440,000, is the state’s fifthlargest city and a major international port paired with the City ofLos Angeles Harbor. In addition, the proposed route for the Kernextension would pass several oil refineries and gas-fired powerplants. The Long Beach Gas Department has a daily load of about 35MMcf, or 13 Bcf annually, and has expressed interest in newinterstate pipeline capacity. Eight years ago, it made anunsuccessful bid for the pipeline Questar currently is buying for$40 million from ARCO.

The city gas department is scheduled to meet with Questar onSept. 29. By the end of last week, Long Beach also had received awritten solicitation from Kern River, said Chris Garner, Long Beachgas department’s general manager.

“Obviously, we are interested in all of this because it seemsLong Beach is going to be the hub for all of Southern Californiafor pipelines,” Garner said. “We’re excited about that. It givesus some options.” He indicated the municipal gas department alsowill be talking to SoCalGas.

“It opens up opportunities not only for us but also for ourcustomers,” said Garner, noting that in addition to the highlyindustrial port area and adjacent major electric generation plants,some major new industrial loads have been announced privately whichare what he calls “still in the talking stages” of planning anddevelopment.

Snow said there might be enough market for both the Kern andQuestar expansions. Questar is proposing to convert to gastransportation a 16-inch-diameter, under-utilized oil pipeline thatextends from the Paradox Basin in New Mexico to California. The700-mile Four Corners pipeline would transport 130 MMcf/d possiblyas soon as the end of 1999, two years earlier than the Kernextension. Questar currently is holding an open season for theproject and must file an application for the conversion with FERC.

“I’m not surprised they’re interested in this area. There’s somegreat opportunities in Southern California,” said Questar spokesmanChad Jones. “It doesn’t change our plans. We have an aggressiveplan to get this line that we’re in the process of purchasingconverted by the fourth quarter of 1999. We intend to competeaggressively with whomever shows up in the marketplace.”

Both companies certainly will face battles with California’sLDCs. “I would be extremely surprised if [SoCalGas and Pacific Gas&amp Electric] didn’t fight this,” said Snow. “We expect a dogfightfrom the utilities. But we’ve gone through that battle before.That’s why Kern River is in California now.

“If SoCalGas can’t offer customers the most economic solutionwhy shouldn’t people be able to pursue other options? Myunderstanding is they’re charging 50-cents to $1/MMBtu for [firmtransportation to the city].” Snow wouldn’t provide any details onthe rates Kern plans to offer, and the company is not disclosingthe cost of the extension at this time. Kern intends to chargeincremental rates that are “competitive with SoCalGas and PG&ampEexisting rates.”

SoCalGas said Kern’s move was expected becau se it acknowledgedits plans as part of its participation in the recently concludedEnova-Pacific Enterprises merger proceedings. A SoCalGasspokesperson said the utility thinks it can successfully competewith Kern’s proposed pipeline expansion, but only if stateregulators give it “certain tools” that have been requested,including an expedited process for signing long-term, below-marketcontracts with large customers; removal of subsidies largecustomers now pay to help keep rates down to the smallestcustomers; and non-bypassable charges for stranded facility costsand for various social welfare (so-called “public goods”) programs.

A spokesperson for PG&ampE Corp., parent Pacific Gas andElectric, the San Francisco-based utility, said PG&ampE is “alwaysevaluating the marketplace” both nationally and within California,but at this point it has “nothing to report” regarding Kern’sintentions in the southern half of the state.

The Kern extension currently does not include a related upstreamexpansion. Kern expects Long Beach to be an attractive new marketfor existing throughput. “Right now we have a lot of volume movingon a day-to-day basis fighting that spot market game,” said Snow.”We’re hearing you might be able to line up some large base loadcustomers with this.”

Kern is requesting prospective shippers sign confidentialityagreements that would prohibit sharing information about theproject with Questar or California’s utilities. “We’re beingselective because we don’t want people to use this as leverage toextract something from the LDC and leave us out in the cold. Mojavetried an expansion into Northern California. They spent a lot ofmoney; came up with specific plans; and in the end, PG&ampE came inand offered a rate that was a little bit better, and the customersjumped ship and went and took that better rate. We don’t want to beleft hanging.”

The open season closes Oct. 16. For details on the Kern Riverextension contact Greg Snow at (801) 584-7076.

Rocco Canonica; Richard Nemec, Los Angeles

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