Report from yesterday's technical conference.  FYI, Kern River originally 
argued that there is no viable segmentation opportunity on its system because 
there are currently no gas supply sources available to its shippers between 
the Utah and Nevada markets to source a segmented transport.  After a 
technical conference last October, Kern River did file a segmentation 
proposal, but I'm not sure how much value it would have as a practical 
matter.  Note the Southwest Gas arguments (summarized in #3 below) for 
allowing backhauls from California to Las Vegas under a segmented agreement.

---------------------- Forwarded by Rebecca W Cantrell/HOU/ECT on 04/18/2001 
12:31 PM ---------------------------


Donna Fulton@ENRON
04/17/2001 12:05 PM
To: Rebecca W Cantrell/HOU/ECT@ECT, Leslie Lawner/NA/Enron@Enron, Suzanne 
Calcagno/NA/Enron@Enron
cc: James D Steffes/NA/Enron@Enron, Christi L Nicolay/HOU/ECT@ECT 
Subject: Kern River 637 Segmentation Issue

Becky,

I did attend this morning's Kern River technical conference in Docket No. 
RP00-337 at FERC.  The discussion was only on the segmentation proposal made 
by Kern River.  They have filed pro forma tariff sheets to allow:
segmenting of firm contracts at any point
segmentation and release
subject to a limitation of MD at any overlapping points
backhaul from supply pooling points or points where gas is physically received
sets out secondary priorities for transportation within the path and outside 
the path

After Kern River made this pro forma filing, there were two protests by 
Dynegy and Southwest Gas.  Kern River discussed these protests at this 
technical conference in attempt to resolve all issues.

1.  Kern River agreed with Dynegy's point that a segmenting shipper should 
retain primary rights to mainline capacity when using points within the 
original contract path or even when outside of path but the mainline 
constraint remains the same as within the path.

However, after determining priorities on mainline capacity, if constraints 
occur at specific new points in the segmented transaction, then the 
transaction could be given secondary priority based on the receipt or 
delivery point capacity.

Indicated Shippers needed to be assured that their capacity to Wheeler would 
not be diminished due to this new policy.  Kern River responded that this is 
how they have always treated flex points and that because Wheeler was a 
constrained point, any segmented transactions that used Wheeler (new) would 
be secondary to the current rights (not on the basis of mainline but on the 
basis of the delivery point scheduling).

2.  In response to Southwest's first issue, Kern River also agreed to make 
changes to provide parity between segmentation for release and segmentation 
for a shipper's own use of transportation.  If a shipper segments a contract, 
it can get additional primary receipt or delivery point capacity within the 
path if it is available from the pipeline.

It was also noted that a shipper can segment a contract that goes from A to C 
into two transactions - A to B and then a backhaul from C to B.  In doing 
this, since there is no overlapping of mainline capacity, both transactions 
can be at the original MDQ.  The result could be double the MDQ at the new 
delivery point B.  This seems very flexible of Kern River and perhaps more 
than many other pipelines currently are willing to offer.  

3.  The last issue raised by Southwest was the controversial one and was not 
resolved at today's technical conference.  Southwest wants to use its firm 
transportation contract on Kern River through segmenting to backhaul from 
Wheeler Ridge delivery point or from PG&E delivery point to Las Vegas.  Kern 
River currently will provide this kind of service only on a IT basis - a 
separate service to Southwest.  They claim that this cannot be provided on a 
firm basis.  Southwest states that this is displacement service and barring 
insufficient deliveries at Wheeler or PG&E (very unlikely, according to 
Southwest), could be provided under their firm contract.  They are willing to 
take the risk that the capacity would not be available if Kern does not have 
enough forward haul to Wheeler or PG&E.

Indicated Shippers claimed that this is similar to a service provided by 
Transwestern; however Transwestern offered this as a pipeline firm service.  
Kern River claims that it does not and cannot offer this backhaul as a firm 
service.  Kern River also argued that per GISB once gas is scheduled on a 
firm contract to a secondary point that it is considered firm.  IT can be 
bumped intraday and this backhaul service may be bumped.

Mirant also supported Southwest on this issue because they know of some power 
plants in the Las Vegas area being built that could use this kind of service.

Kern River maintained that this service is not required by Order No. 637.

Kern River will file changes to the pro forma tariff by May 15.  Comments by 
the parties are due June 1 and Kern River can file in reply by June 11.  
Comments should be emailed to the parties.