Message-ID: <6287680.1075860882795.JavaMail.evans@thyme> Date: Wed, 5 Sep 2001 16:27:02 -0700 (PDT) From: eric.gadd@enron.com To: danny.mccarty@enron.com Subject: Kinder Morgan - Sonoran Project Cc: kevin.hyatt@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable Bcc: kevin.hyatt@enron.com X-From: Gadd, Eric X-To: McCarty, Danny X-cc: Hyatt, Kevin X-bcc: X-Folder: \Kevin_Hyatt_Mar2002\Hyatt, Kevin\Projects\Sun Devil X-Origin: Hyatt-K X-FileName: khyatt (Non-Privileged).pst Danny, Today, Kevin and I met with Scott Parker (KMI), Ron Brown (KMI), and Chad D= riscoll (Calpine) to discuss possibilities of bundling Kinder Morgan's Sono= ran project with Sun Devil. A summary of our discussions is outlined below= . Concept Explore the possibility of combining the Sun Devil and Sonoran Pipeline pro= jects into a single venture along the existing Transwestern route from San = Juan to the California Border. Progress separate projects for service to P= hoenix (Sun Devil) and California (Sonoran). Rationale Lower costs, higher margins Greater capacity, economic scale, expansion options Reduced stakeholder interventions (Navajos, environmental interests groups,= shippers) Reduced regulatory process Background On May 2, 2001, Kinder Morgan and Calpine announced plans to jointly develo= p the Sonoran Pipeline, subject to customary approvals and sufficient inter= est by potential shippers. As proposed, the Sonoran pipeline will be a 1,1= 60 mile high pressure interstate natural gas pipeline from the San Juan Bas= in in northern New Mexico to markets in California. The project, with an e= stimated cost of $1.8 billion, will provide natural gas transportation capa= city to California to serve growing electric generation demand. =20 The proposed pipeline will be evaluated and developed in two phases. The f= irst phase will run from the San Juan Basin to the California border with t= he second phase extending from the California border to the San Francisco B= ay area. =20 The first phase of the pipeline is expected to be completed in the summer o= f 2003. Phase one will consist of a 460 mile, 36 inch diameter pipeline fr= om the interconnection of TransColorado Gas Transmission and Transwestern P= ipeline to various points at the Blanco Hub in San Juan, NM. In addition, = the pipeline will continue westward with deliveries into the California/Ari= zona border. A 20 mile, 24 inch diameter lateral would be built to Topock,= AZ. The initial capacity would start with 750,000 dth/d, with capability = to expand to 1 million dth/day. The estimated cost of phase one is $624 wi= th a targeted in-service date of summer 2003. Sponsors said the open seaso= n will seek at a minimum, 20-year term commitments at a fixed transport rat= e of $0.39/dth for firm transportation. Sonoran proposes to charge shipper= s actual fuel on phase one via a fuel tracker. Fuel is estimated at 1.3%. = More than 1 billion cubic feet per day of binding agreements and non-bindi= ng expressions of interest were received for the first phase of the project= . =20 Phase two will be a 590 mile, 42 inch diameter pipeline from Needles on the= California border to points within California, terminating near Antioch in= Contra Costa County. Once completed, the pipeline will be able to transpo= rt between 1 million and 1.5 million dth/day. The in-service date for the = phase two has yet to be determined. The cost is projected to be $1.1 billi= on. Another 1.5 Bcf/d of non-binding commitments and expressions of inter= est were received for phase two. =20 Sonoran has already received binding bids from Calpine Energy Services for = 400,000 dth/d for phase one and another 500,000 dth/d for its phase two. On= ce completed, the new pipeline could connect with Kern River, Mojave, Elk H= ills, Pacific Gas and Electric, Southern California Gas and various gas-fir= ed power plants. =20 SoCalGas's Residual Load Service (RLS) penalty woull not affect the Sonoran= project because the pipeline route parallels PG&E's pipelines and the prim= ary target load is new gas-fired generation not within SoCalGas's market te= rritory.=20 The pipeline also will connect to a new underground storage facility near L= odi being developed by Lodi Gas Storage, Inc., a subsidiary of Houston base= d Western Hub Properties LLC. =20 The project could have a noteworthy co-owner: the Navajo Nation, the sovere= ign government of 180,000 residents on the largest Indian reservation withi= n the United States. An agreement in principle to give the Navajos an owne= rship interest in the $1.7 billion pipeline that crosses their reservation = was disclosed in August by an executive of Kinder Morgan at Indian Energy 2= 001, a conference of the Council of Energy Resource Tribes that highlighted= the growing role Indian tribes play in powering the West. As part of the = deal to secure that right of way, the Navajo Nation would invest in the pro= ject and receive a minority interest when the pipeline opens. The deal wou= ld be structured to limit the tribe's exposure to risks during the construc= tion phase of the project. Gas from the pipeline could also fuel a propose= d Navajo-owned power plant on the reservation. Red Cedar Gas Gathering, wh= ich is jointly owned by the Southern Ute Indian Tribe and Kinder Morgan mad= e arrangements with the Navajo Indians. Kinder Morgan is not interested in expanding the equity participants in the= Sonoran Pipeline. Next steps Kinder Morgan to evaluate providing facilities to serve TW open season mark= ets (SJ, Phoenix, California) along proposed Sonoran Pipeline route and com= e back to ETS with a proposal (operating lease, undivided interest, no ship= per contractual arrangements).=20 ETS to identify risks and mitigants associated with Sonoran Pipeline projec= t=20 - Interference with existing TW pipeline operations during construction and= on-going operations - Use of TW r-o-w - Other