From: jeffery.fawcett@enron.com
To: steven.harris@enron.com, kimberly.watson@enron.com, glen.hass@enron.com, mbaldwin@igservice.com, jeff.dasovich@enron.com, tony.pryor@enron.com
Date: 2001-06-12 08:59:00+00:00
Subject: Kern River Wheeler Ridge

KERN RIVER AMENDS 2002 EXPANSION; DISPUTE FLAIRS OVER DISPOSITION OF CAPACITY 
AT WHEELER RIDGE
Kern River Gas Transmission (CP01-31) recently amended its 11/15/00 
application for authority to construct and operate facilities (2002 Expansion 
Project) to serve new and existing powerplants in California as of 5/1/02. 
Because the 2002 Expansion now incorporates most of the facilities to be 
installed for the short-term California Action Project (CP01-106), Kern River 
needs only an additional 10,500 dth/d from Wyoming to California. The 10,500 
dth/d plus 114,000 dth/d expiring on 5/1/02 for California Action shippers 
will create 124,500 dth/d needed by all 2002 Expansion shippers. However, the 
revised design includes the continuation of 21,000 dth/d of capacity - at the 
Wheeler Ridge delivery point where Kern River interconnects with Southern 
California Gas Co. (SoCalGas) - available to California Action shippers 
through 5/1/03, at which time Kern River will incorporate the 21,000 dth/d 
into its 2003 Expansion Project. In its April order certificating the 
expedited California Action Project, FERC also directed Kern River to seek 
explicit authority to reserve excess capacity for planned future expansions. 
Kern River (RP01-411) complied with a tariff filing which triggered a protest 
from the Firm Customers.  The Firm Customers 1 claim that Wheeler Ridge is 
significantly constrained, and Kern River should not be able to reserve 
capacity especially at that point until all existing firm shippers with 
primary delivery point rights are reliably served.  In the most recent 
development, on June 4, Kern River answered that &it is not responsible8 for 
problems downstream of Wheeler Ridge.

California Action Project (CP01-106). FERC granted Kern River a certificate 
on April 6 to provide up to 135,000 Mcf/d of limited-term, incremental 
capacity from Wyoming to California as of July 1 to address the urgent need 
for additional energy. In the order, the Commission recognized that upgrading 
the meter station at Wheeler Ridge would create &some excess capacity8 and 
that Kern River planned to reserve that capacity for its 2003 Expansion.  
While the reservation of capacity was not precluded under its existing 
tariff, Kern River told FERC that it would file for explicit authority to 
reserve capacity under the current circumstances.  Noting that such capacity 
would be available for interruptible and secondary firm deliveries between 
the in-service dates of the California Action and the 2003 Expansion, the 
Commission directedKern River to file a tariff provision within 30 days. In a 
request for rehearing filed May 7, the Firm Customers challenged FERC,s 
assumption that there will be &some excess capacity8 at Wheeler Ridge. They 
cited evidence indicating that Wheeler Ridge is already constrained, 
resulting in &significant8 scheduling cuts (e.g., firm nominations cut 50% in 
May). They insisted that expansion shippers should not have primary point 
access at Wheeler Ridge. In the alternative, expansion shippers should not 
enjoy the same level of firm service as existing shippers. This line of 
argument was challenged by Kern River and expansion shipper Mirant Americas 
Energy Marketing LLC, who urged FERC to deny rehearing.

Capacity Reservation Proposal (RP01-411). On May 7, Kern River filed a 
revised tariff sheet, the Firm Customers filed a protest, and Kern River 
answered. While they support expansion of Kern River into California, the 
Firm Customers fear that the proposed tariff language &is not sufficiently 
conditioned toprevent Kern River from reserving (i.e., withholding) or 
reselling capacity on an interim basis where there is no excess capacity to 
reserve or resell.8 They are particularly concerned that Kern River may be 
able to withhold capacity, and/or sell incremental capacity on an interim 
basis, at Wheeler Ridge. The proposal &would permit Kern River to reserve 
what it does not have (i.e., +excess capacity,) and to recapture what it has 
already sold (i.e., primary firm capacity held by existing Firm Customers) 
for sale to others.8 This violates the Commission's regulations and is 
&contrary to every notion of due process, fairness, and the sanctity of 
contracts,8 they said. As in their request for rehearing of the California 
Action order, the Customers cited evidence of &significant8 scheduling cuts 
at Wheeler Ridge. &Kern River should not be allowed to reserve (or sell) 
capacity at the Wheeler Ridge point until there is excess primary delivery 
point capacity at that point and sufficient downstream take-away capacity 
such that existing firm shippers, scheduling nominations for primary points 
are not cut,8 they said. Accordingly, they urged the Commission to reject the 
tariff filing to the extent that it allows reservation or interim sale of 
capacity at Wheeler Ridge; and to clarify that Kern River is not allowed to 
withhold excess capacity at any point on its system &when there are shippers 
that are willing to pay maximum tariff rates for such capacity under 
long-term contracts.8  The Firm Customers failed to seek rehearing expressly 
on FERC,s directive about Wheeler Ridge, shot back Kern River. The attempt to 
get FERC &to disallow in this docket what the Commission recognized and 
allowed in [CP01-106] is inappropriate,8 the company said.  In any case, the 
&essence8 of their position was already set forth in the rehearing request. 
As before, the Firm Customers &disregard the fact that Kern River is not 
responsible for the market problems downstream of its Wheeler Ridge delivery 
point,8 but only for &reliably meeting its commitment to provide firm 
transportation deliveries8 to that point. It has reliably delivered all 
quantities scheduled by SoCalGas for take-away and has the capacity to 
deliver volumes up to the level of its firm contract obligations.  Moreover, 
a prohibition on reservation of capacity at Wheeler Ridge would change the 
facility design of the 2003 Expansion which, in turn, could delay a new 
certificate filing beyond August 1 and the in-service date of the 2003 
Expansion beyond 5/1/03. It could also could cause overbuilding of expansion 
capacity and increase costs for both new and existing shippers.

Amended 2002 Expansion (CP01-31). In the original application filed 11/15/00, 
Kern River proposed to provide up to 124,500 dth/d of new, firm, long-term 
contract demand as of 5/1/02. The amendment, filed May 11, proposes to 
install an additional unit at Kern River,s Muddy Creek Compressor Station in 
Lincoln County, Wyoming; a new unit at its Daggett Compressor Station in San 
Bernardino County, California; and an upgrade of its Opal Meter Station in 
Lincoln County, Wyoming. These facilities will cost approximately $31.4 
million. A pro rata share (124.5 dth/d out of 145.5 dth/d) of California 
Action costs will be allocated to the 2002 Expansion. Kern River renewed its 
request for a predetermination of rolled-in rate treatment for the 2002 
Expansion since the billing determinants (124,500 dth/d) will reduce existing 
rates by 6%-7%, offset in part by higher compressor fuel costs and electric 
compressor costs.  To ensure recovery of actual costs from shippers flowing 
gas through Daggett (excluding California Action shippers subject to a 
separate, incremental fuel in-kind reimbursement obligation), Kern River 
still sought FERC approval of a pro forma tariff provision establishing an 
electric compressor fuel surcharge.  However, the initial surcharge now 
proposed is $0.0099 per dth of gas flow through the station, based on updated 
gas volumes and electricity costs. Kern River asked the Commission to act by 
August so construction can begin at Muddy Creek by September 1, before the 
onset of winter in Wyoming.