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Kern Plans First Extension: A Lateral to Long Beach

September 28, 1998
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Kern Plans First Extension: A Lateral to Long Beach

Southern California has become the latest hot spot for gas pipeline competition. Following the successful $50,000 bid two weeks ago for Southern California Gas' option to purchase (in 2012) the California portion of the Kern River Pipeline, Williams wasted no time in drawing up plans for Kern River's first major extension project since going into operation in 1992.

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

Kern River had been spending a fourth year studying a possible extension into the city when Questar snuck into Long Beach this summer with an attractive proposal to convert an existing oil line to flow gas. That signaled the need to stop talking and start acting, said Greg Snow, vice president of business development for Williams Gas Pipeline-West, Kern's parent company.

"I don't look at it as if we're getting into this late. We've talked to a lot of people about it. We've done preliminary construction and environmental studies for alternate routes, identified a customer coalition. We've done a lot of ground work already," he said.

Gaining SoCalGas's option also opened a window of opportunity for the project, he added. SoCalGas was ordered by California regulators to divest options to buy Kern and Mojave Pipeline Co. facilities as a condition of the merger between SoCalGas' parent Pacific Enterprises and Enova Corp.

"It took away some of the uncertainty. One of the reasons why customers might want to go over to a direct connect to an interstate would be to avoid CPUC jurisdiction. If there was a possibility those facilities would revert back to the CPUC jurisdiction sometime in the future some customers might not want to sign on," Snow noted.

Long Beach, with a population of 440,000, is the state's fifth largest city and a major international port paired with the City of Los Angeles Harbor. In addition, the proposed route for the Kern extension would pass several oil refineries and gas-fired power plants. The Long Beach Gas Department has a daily load of about 35 MMcf, or 13 Bcf annually, and has expressed interest in new interstate pipeline capacity. Eight years ago, it made an unsuccessful bid for the pipeline Questar currently is buying for $40 million from ARCO.

The city gas department is scheduled to meet with Questar on Sept. 29. By the end of last week, Long Beach also had received a written solicitation from Kern River, said Chris Garner, Long Beach gas department's general manager.

"Obviously, we are interested in all of this because it seems Long Beach is going to be the hub for all of Southern California for pipelines," Garner said. "We're excited about that. It gives us some options." He indicated the municipal gas department also will be talking to SoCalGas.

"It opens up opportunities not only for us but also for our customers," said Garner, noting that in addition to the highly industrial port area and adjacent major electric generation plants, some major new industrial loads have been announced privately which are what he calls "still in the talking stages" of planning and development.

Snow said there might be enough market for both the Kern and Questar expansions. Questar is proposing to convert to gas transportation a 16-inch-diameter, under-utilized oil pipeline that extends from the Paradox Basin in New Mexico to California. The 700-mile Four Corners pipeline would transport 130 MMcf/d possibly as soon as the end of 1999, two years earlier than the Kern extension. Questar currently is holding an open season for the project and must file an application for the conversion with FERC.

"I'm not surprised they're interested in this area. There's some great opportunities in Southern California," said Questar spokesman Chad Jones. "It doesn't change our plans. We have an aggressive plan to get this line that we're in the process of purchasing converted by the fourth quarter of 1999. We intend to compete aggressively with whomever shows up in the marketplace."

Both companies certainly will face battles with California's LDCs. "I would be extremely surprised if [SoCalGas and Pacific Gas &amp Electric] didn't fight this," said Snow. "We expect a dogfight from 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 solution why shouldn't people be able to pursue other options? My understanding is they're charging 50-cents to $1/MMBtu for [firm transportation to the city]." Snow wouldn't provide any details on the rates Kern plans to offer, and the company is not disclosing the cost of the extension at this time. Kern intends to charge incremental rates that are "competitive with SoCalGas and PG&ampE existing rates."

SoCalGas said Kern's move was expected becau se it acknowledged its plans as part of its participation in the recently concluded Enova-Pacific Enterprises merger proceedings. A SoCalGas spokesperson said the utility thinks it can successfully compete with Kern's proposed pipeline expansion, but only if state regulators give it "certain tools" that have been requested, including an expedited process for signing long-term, below-market contracts with large customers; removal of subsidies large customers now pay to help keep rates down to the smallest customers; and non-bypassable charges for stranded facility costs and for various social welfare (so-called "public goods") programs.

A spokesperson for PG&ampE Corp., parent Pacific Gas and Electric, the San Francisco-based utility, said PG&ampE is "always evaluating the marketplace" both nationally and within California, but at this point it has "nothing to report" regarding Kern's intentions in the southern half of the state.

The Kern extension currently does not include a related upstream expansion. Kern expects Long Beach to be an attractive new market for existing throughput. "Right now we have a lot of volume moving on 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 load customers with this."

Kern is requesting prospective shippers sign confidentiality agreements that would prohibit sharing information about the project with Questar or California's utilities. "We're being selective because we don't want people to use this as leverage to extract something from the LDC and leave us out in the cold. Mojave tried an expansion into Northern California. They spent a lot of money; came up with specific plans; and in the end, PG&ampE came in and offered a rate that was a little bit better, and the customers jumped ship and went and took that better rate. We don't want to be left hanging."

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

Rocco Canonica; 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.

ISSN © 2577-9877 | ISSN © 1532-1266
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