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SoCalGas to Auction Rights To Buy Portions of Kern, Mojave

June 8, 1998
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SoCalGas to Auction Rights To Buy Portions of Kern, Mojave

Both Kern River and Mojave are expected to be bidders, along with other interstate gas transporters, such as Transwestern and Enron, on Southern California Gas' exclusive rights to buy the 370 miles of gas pipeline that make up the in-state California portions of the Kern River and Mojave pipeline systems, according to one energy consultant. SoCalGas' purchase options are effective in 2012.

The large-diameter transmission pipelines and related facilities can move 1.1 Bcf/d of natural gas to multiple California markets from Rocky Mountain and Southwest region supply sources. The auction process opens today with bids due in by mid-July. The sale is expected to be completed by Sept. 1.

The sale is a regulatory-imposed contingency of the proposed $6.6 billion Pacific Enterprises-Enova merger of major energy utility holding companies in the southern half of the state. The CPUC feared exercise of the options by SoCal would eliminate what little positive benefits were provided by the LDC's only competition in the region. California's other major gas distributor, PG&ampE Corp., which also has major intrastate and interstate natural gas pipeline facilities, could be among the bidders. A PG&ampE Corp. spokesperson said PG&ampE would expect to be considered a potential bidder in the auction, but for now, has "nothing to report." Some of the state's municipal utilities gave similar negative responses, indicating little or no interest in the bidding.

The current statewide estimates of gas demand growth over the next 15 years is around 20%, and the Kern/Mojave combined facilities have the capability to add 500 MMcf/d of capacity at little added expense, according to SoCalGas' analysis.

Book values on the Kern and Mojave facilities, which are owned by different companies, were not available. However, if a ballpark estimate of $2 million per mile of pipe is used, the value of the combined facilities would be more than $700 million. Williams bought the remaining 50% interest in entire Kern River Pipeline from Tenneco in 1996 for $205 million after a $225 million purchase offer from Questar was blocked by the Federal Trade Commission

The eventual owner of SoCal's options will have the right to negotiate a price with either Kern or Mojave that is between the book value of the assets at the time and the original cost of those assets. If a deal cannot be made after a 90-day negotiating period, the talks go to binding arbitration. This pre-set process is part of the option, according to SoCalGas spokesperson Mike Mizrahi.

From a deal cut in the early 1990s that eliminated its vocal opposition to the first-ever non-California interstate transmission pipelines into the state, SoCalGas gained the exclusive rights to buy in the year 2012 the Kern River and Mojave Pipeline facilities in California. The auction begins June 8 and is expected to continue through mid-July. Bidders can submit one overall bid or two separate ones.

What is being auctioned are the exclusive rights to buy Kern River's 120 miles of 36-inch-diameter pipeline from the California-Nevada border to the desert town of Daggett, about 150 miles northeast of Los Angeles; Mojave's 145 miles of 30-inch-diameter pipeline from the Colorado River to Daggett where it interconnects with Kern River; and about 105 miles of jointly owned, 42-inch-diameter pipeline with two spurs and customer metering and other related facilities in the south end of the San Joaquin Valley near Bakersfield, CA, a major oil and agricultural area. The combined interstate system moves about 20% of California's current average daily gas demand (5.4 Bcf/d), serving mostly very large industrial operations in the oil industry in the greater Bakersfield area.

Ownership of the joint facilities is based on the two pipelines' relative maximum capacities: 700 MMcf/d for Kern River and 400 MMcf/d for Mojave, so Kern's share of the combined facilities is seven-elevenths, and Mojave has the rest, according to SoCalGas' Mizrahi.

Information about the pipelines, none of which have any compression facilities attached to them, will be available on SoCalGas' Internet website ( The sales manager for the project is SoCal's Jerry McPherson, (213)-244-3972.

Both the California Public Utilities Commission and the Federal Energy Regulatory Commission in approving the PE-Enova merger specified that PE's primary subsidiary, SoCalGas, sell its options on both Kern River and Mojave. The merger, which needs one more approval - from the Securities and Exchange Commission - is expected to be completed July 1, 1998, resulting in the creation of Sempra Energy, which will include the largest single utility customer aggregation in the nation (more than 6 million meters).

Richard Nemec, Los Angeles

©Copyright 1998 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

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