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Kern River Offering Discounted TDR Rates

Kern River Offering Discounted TDR Rates

Williams' Kern River pipeline, with expansion plans targeting Long Beach, CA, is holding an open season offering term differentiated rates (TDR) for firm service representing a discount from existing rates of up to 25 cents/Dth. The 15-day open season began Oct. 23.

Under the TDR agreement, the contract term would determine the transportation rate a customer would pay. Kern River is offering rates of 10 years or longer. The 10-year option would yield a rate between 47 and 52 cents/Dth. The 15-year option would yield rates between 41 and 46 cents/Dth. Kern River's existing rate is 66 cents/Dth. The pipeline would consider contracts longer than 15-years as well, said Greg Snow, business development representative.

During the open season, firm shippers will have the opportunity to release existing capacity to satisfy new capacity commitments before any expansion is built. If interest is shown in the TDR options, Kern River will develop new rate schedules to take to the Federal Energy Regulatory Commission for approval.

Kern River will maintain its current cost of service-based levelized rate structure through 2007 for shippers not wanting to extend their firm service contracts. Should existing capacity be fully subscribed after restructuring existing commitments, Kern River will expand its mainline. The pipeline can install additional compression and expand its system. An expansion of 250,000 Dth would lower the 15-year TDR rate option to 35 to 40 cents/Dth.

"We are interested in expanding our system to access new gas markets emerging because of electric restructuring in California and Nevada and new gas-powered generation facilities," said Kirk Morgan, director of business development. "The ability to reduce transportation costs by subscribing for one of the TDR options increases the value of FT and helps position any Kern River shipper to take advantage of new market opportunities."

While the new TDR rates would not be predicated on Kern River's previously announced expansion into Long Beach, they could boost interest in the expansion among shippers. Kern's first major extension project since beginning operation in 1992 is a 150-mile lateral extension to Long Beach (See NGI Sept. 28, 1998). The new pipe would be 24- or 30-inches in diameter and would carry a minimum of 300 MMcf/d. Kern had been spending a fourth year studying a possible extension into the city when Questar snuck into Long Beach this summer with a proposal to convert an existing oil line to flow gas.

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," Snow told NGI last month. "We're hearing you might be able to line up some large base load customers with this."

Snow said existing shippers were receptive to the TDR rates when Kern River presented them. However, the interest could stem from their desire to release capacity, he conceded. Kern has contacted some large potential shippers, "but it's really premature to try to ascertain what the market interest might be right now."

For more information, call Snow, (801)584-7270.

Joe Fisher, Houston

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