Both Kern River and Mojave are expected to be bidders, alongwith other interstate gas transporters, such as Transwestern andEnron, on Southern California Gas’ exclusive rights to buy the 370miles of gas pipeline that make up the in-state California portionsof the Kern River and Mojave pipeline systems, according to oneenergy consultant. SoCalGas’ purchase options are effective in2012.

The large-diameter transmission pipelines and related facilitiescan move 1.1 Bcf/d of natural gas to multiple California marketsfrom Rocky Mountain and Southwest region supply sources. Theauction process opens today with bids due in by mid-July. The saleis 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 energyutility holding companies in the southern half of the state. TheCPUC feared exercise of the options by SoCal would eliminate whatlittle positive benefits were provided by the LDC’s onlycompetition in the region. California’s other major gasdistributor, PG&ampE Corp., which also has major intrastate andinterstate natural gas pipeline facilities, could be among thebidders. A PG&ampE Corp. spokesperson said PG&ampE would expect tobe considered a potential bidder in the auction, but for now, has”nothing to report.” Some of the state’s municipal utilities gavesimilar negative responses, indicating little or no interest in thebidding.

The current statewide estimates of gas demand growth over thenext 15 years is around 20%, and the Kern/Mojave combinedfacilities have the capability to add 500 MMcf/d of capacity atlittle added expense, according to SoCalGas’ analysis.

Book values on the Kern and Mojave facilities, which are ownedby different companies, were not available. However, if a ballparkestimate of $2 million per mile of pipe is used, the value of thecombined facilities would be more than $700 million. Williamsbought the remaining 50% interest in entire Kern River Pipelinefrom Tenneco in 1996 for $205 million after a $225 million purchaseoffer from Questar was blocked by the Federal Trade Commission

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

From a deal cut in the early 1990s that eliminated its vocalopposition to the first-ever non-California interstate transmissionpipelines into the state, SoCalGas gained the exclusive rights tobuy in the year 2012 the Kern River and Mojave Pipeline facilitiesin California. The auction begins June 8 and is expected tocontinue through mid-July. Bidders can submit one overall bid ortwo separate ones.

What is being auctioned are the exclusive rights to buy KernRiver’s 120 miles of 36-inch-diameter pipeline from theCalifornia-Nevada border to the desert town of Daggett, about 150miles northeast of Los Angeles; Mojave’s 145 miles of30-inch-diameter pipeline from the Colorado River to Daggett whereit interconnects with Kern River; and about 105 miles of jointlyowned, 42-inch-diameter pipeline with two spurs and customermetering and other related facilities in the south end of the SanJoaquin Valley near Bakersfield, CA, a major oil and agriculturalarea. The combined interstate system moves about 20% ofCalifornia’s current average daily gas demand (5.4 Bcf/d), servingmostly very large industrial operations in the oil industry in thegreater Bakersfield area.

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

Information about the pipelines, none of which have anycompression facilities attached to them, will be available onSoCalGas’ Internet website (www.socalgas.com/3rdparty). The salesmanager for the project is SoCal’s Jerry McPherson, (213)-244-3972.

Both the California Public Utilities Commission and the FederalEnergy Regulatory Commission in approving the PE-Enova mergerspecified that PE’s primary subsidiary, SoCalGas, sell its optionson both Kern River and Mojave. The merger, which needs one moreapproval – from the Securities and Exchange Commission – isexpected to be completed July 1, 1998, resulting in the creation ofSempra Energy, which will include the largest single utilitycustomer aggregation in the nation (more than 6 million meters).

Richard Nemec, Los Angeles

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.