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LA Suburb Eyed by New Gas Lines

LA Suburb Eyed by New Gas Lines

Located less than five miles from downtown Los Angeles, the industrial city of Vernon sits as an attractive trophy for one of the two proposed natural gas interstate pipelines. The business-focused local government is finishing construction of a new municipal gas distribution system that will compete with Southern California Gas' existing network. By next year, there will be duplicative gas distribution systems operating.

Although no one will officially confirm negotiations, it is obvious that both Questar's Southern Trails line, a planned conversion of an interstate oil pipeline, and the proposed southern expansion of Kern River Pipeline's existing system are targeting Vernon. It's a city with less than a dozen residential energy customers and more than 900 commercial and industrial business operators that collectively represent a 38 MMcf/d gas load and a $54 million annual electric bill paid to municipal utilities. Some of its industrial sites are ripe for future cogeneration or merchant power plants. The city leaders boast that Vernon represents "one of the most cost-effective manufacturing centers in the U.S. with the lowest utility bills in the region."

A Questar spokesman said conversion of the 700-mile formerly Arco oil pipeline, which runs primarily between northwestern New Mexico's Paradox Basin and Long Beach, CA, is moving along on schedule for start of gas service in mid-2001. Upon completion, the pipeline's capacity will be 120-130 MMcf/d. He refused to name specific customers, but noted Questar has signed one contract and negotiations are ongoing with all other potential customers identified from an open season held late in 1998. Questar filed with FERC March 9 a request to change the project to an "at-risk" status, meaning it is foregoing the process of proving a minimal customer base in favor of having its shareholders take the risk that it can sign up the needed load to make the pipeline economically viable.

Kern River also would not say if Vernon is among the 1 Bcf/d of interest the interstate pipeline company received during its recent open season. "At this point there is nothing to report," said Kern's Jennifer Pierce, noting that there is "lots of interest" from what she characterizes as numerous potential customers in Southern California. Pierce also said that Kern is offering "term differential" rates for interstate transportation into California as a means of sweetening their offers to prospective customers.

Vernon is in the third phase of a four-phase construction program begun in 1997 at the urging of several of the city's large manufacturers who were unhappy with existing gas utility rates for transportation. In total, the city will operate 41 miles of distribution pipe and 5 miles of steel mainline. "We believe we have planned for not only current loads but significant growth in the future," said Dick Sweeney, gas operations manager for the Vernon utility. "The industrial customers asked us to develop the natural gas system, but it would be a little premature to have contracts yet since we're not operational yet."

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