Kern River Wheeler Ridge ,
 KERN RIVER AMENDS 2002 EXPANSION; DISPUTE FLAIRS OVER DISPOSITION OF CAPACI=
TY=20
AT WHEELER RIDGE
Kern River Gas Transmission (CP01-31) recently amended its 11/15/00=20
application for authority to construct and operate facilities (2002 Expansi=
on=20
Project) to serve new and existing powerplants in California as of 5/1/02.=
=20
Because the 2002 Expansion now incorporates most of the facilities to be=20
installed for the short-term California Action Project (CP01-106), Kern Riv=
er=20
needs only an additional 10,500 dth/d from Wyoming to California. The 10,50=
0=20
dth/d plus 114,000 dth/d expiring on 5/1/02 for California Action shippers=
=20
will create 124,500 dth/d needed by all 2002 Expansion shippers. However, t=
he=20
revised design includes the continuation of 21,000 dth/d of capacity - at t=
he=20
Wheeler Ridge delivery point where Kern River interconnects with Southern=
=20
California Gas Co. (SoCalGas) - available to California Action shippers=20
through 5/1/03, at which time Kern River will incorporate the 21,000 dth/d=
=20
into its 2003 Expansion Project. In its April order certificating the=20
expedited California Action Project, FERC also directed Kern River to seek=
=20
explicit authority to reserve excess capacity for planned future expansions=
.=20
Kern River (RP01-411) complied with a tariff filing which triggered a prote=
st=20
from the Firm Customers.  The Firm Customers 1 claim that Wheeler Ridge is=
=20
significantly constrained, and Kern River should not be able to reserve=20
capacity especially at that point until all existing firm shippers with=20
primary delivery point rights are reliably served.  In the most recent=20
development, on June 4, Kern River answered that =01&it is not responsible=
=018 for=20
problems downstream of Wheeler Ridge.

California Action Project (CP01-106). FERC granted Kern River a certificate=
=20
on April 6 to provide up to 135,000 Mcf/d of limited-term, incremental=20
capacity from Wyoming to California as of July 1 to address the urgent need=
=20
for additional energy. In the order, the Commission recognized that upgradi=
ng=20
the meter station at Wheeler Ridge would create =01&some excess capacity=01=
8 and=20
that Kern River planned to reserve that capacity for its 2003 Expansion. =
=20
While the reservation of capacity was not precluded under its existing=20
tariff, Kern River told FERC that it would file for explicit authority to=
=20
reserve capacity under the current circumstances.  Noting that such capacit=
y=20
would be available for interruptible and secondary firm deliveries between=
=20
the in-service dates of the California Action and the 2003 Expansion, the=
=20
Commission directedKern River to file a tariff provision within 30 days. In=
 a=20
request for rehearing filed May 7, the Firm Customers challenged FERC=01,s=
=20
assumption that there will be =01&some excess capacity=018 at Wheeler Ridge=
. They=20
cited evidence indicating that Wheeler Ridge is already constrained,=20
resulting in =01&significant=018 scheduling cuts (e.g., firm nominations cu=
t 50% in=20
May). They insisted that expansion shippers should not have primary point=
=20
access at Wheeler Ridge. In the alternative, expansion shippers should not=
=20
enjoy the same level of firm service as existing shippers. This line of=20
argument was challenged by Kern River and expansion shipper Mirant Americas=
=20
Energy Marketing LLC, who urged FERC to deny rehearing.

Capacity Reservation Proposal (RP01-411). On May 7, Kern River filed a=20
revised tariff sheet, the Firm Customers filed a protest, and Kern River=20
answered. While they support expansion of Kern River into California, the=
=20
Firm Customers fear that the proposed tariff language =01&is not sufficient=
ly=20
conditioned toprevent Kern River from reserving (i.e., withholding) or=20
reselling capacity on an interim basis where there is no excess capacity to=
=20
reserve or resell.=018 They are particularly concerned that Kern River may =
be=20
able to withhold capacity, and/or sell incremental capacity on an interim=
=20
basis, at Wheeler Ridge. The proposal =01&would permit Kern River to reserv=
e=20
what it does not have (i.e., =01+excess capacity=01,) and to recapture what=
 it has=20
already sold (i.e., primary firm capacity held by existing Firm Customers)=
=20
for sale to others.=018 This violates the Commission's regulations and is=
=20
=01&contrary to every notion of due process, fairness, and the sanctity of=
=20
contracts,=018 they said. As in their request for rehearing of the Californ=
ia=20
Action order, the Customers cited evidence of =01&significant=018 schedulin=
g cuts=20
at Wheeler Ridge. =01&Kern River should not be allowed to reserve (or sell)=
=20
capacity at the Wheeler Ridge point until there is excess primary delivery=
=20
point capacity at that point and sufficient downstream take-away capacity=
=20
such that existing firm shippers=01, scheduling nominations for primary poi=
nts=20
are not cut,=018 they said. Accordingly, they urged the Commission to rejec=
t the=20
tariff filing to the extent that it allows reservation or interim sale of=
=20
capacity at Wheeler Ridge; and to clarify that Kern River is not allowed to=
=20
withhold excess capacity at any point on its system =01&when there are ship=
pers=20
that are willing to pay maximum tariff rates for such capacity under=20
long-term contracts.=018  The Firm Customers failed to seek rehearing expre=
ssly=20
on FERC=01,s directive about Wheeler Ridge, shot back Kern River. The attem=
pt to=20
get FERC =01&to disallow in this docket what the Commission recognized and=
=20
allowed in [CP01-106] is inappropriate,=018 the company said.  In any case,=
 the=20
=01&essence=018 of their position was already set forth in the rehearing re=
quest.=20
As before, the Firm Customers =01&disregard the fact that Kern River is not=
=20
responsible for the market problems downstream of its Wheeler Ridge deliver=
y=20
point,=018 but only for =01&reliably meeting its commitment to provide firm=
=20
transportation deliveries=018 to that point. It has reliably delivered all=
=20
quantities scheduled by SoCalGas for take-away and has the capacity to=20
deliver volumes up to the level of its firm contract obligations.  Moreover=
,=20
a prohibition on reservation of capacity at Wheeler Ridge would change the=
=20
facility design of the 2003 Expansion which, in turn, could delay a new=20
certificate filing beyond August 1 and the in-service date of the 2003=20
Expansion beyond 5/1/03. It could also could cause overbuilding of expansio=
n=20
capacity and increase costs for both new and existing shippers.

Amended 2002 Expansion (CP01-31). In the original application filed 11/15/0=
0,=20
Kern River proposed to provide up to 124,500 dth/d of new, firm, long-term=
=20
contract demand as of 5/1/02. The amendment, filed May 11, proposes to=20
install an additional unit at Kern River=01,s Muddy Creek Compressor Statio=
n in=20
Lincoln County, Wyoming; a new unit at its Daggett Compressor Station in Sa=
n=20
Bernardino County, California; and an upgrade of its Opal Meter Station in=
=20
Lincoln County, Wyoming. These facilities will cost approximately $31.4=20
million. A pro rata share (124.5 dth/d out of 145.5 dth/d) of California=20
Action costs will be allocated to the 2002 Expansion. Kern River renewed it=
s=20
request for a predetermination of rolled-in rate treatment for the 2002=20
Expansion since the billing determinants (124,500 dth/d) will reduce existi=
ng=20
rates by 6%-7%, offset in part by higher compressor fuel costs and electric=
=20
compressor costs.  To ensure recovery of actual costs from shippers flowing=
=20
gas through Daggett (excluding California Action shippers subject to a=20
separate, incremental fuel in-kind reimbursement obligation), Kern River=20
still sought FERC approval of a pro forma tariff provision establishing an=
=20
electric compressor fuel surcharge.  However, the initial surcharge now=20
proposed is $0.0099 per dth of gas flow through the station, based on updat=
ed=20
gas volumes and electricity costs. Kern River asked the Commission to act b=
y=20
August so construction can begin at Muddy Creek by September 1, before the=
=20
onset of winter in Wyoming.
steven.harris@enron.com, kimberly.watson@enron.com, glen.hass@enron.com, 