Kern River Gas Transmission Company

Second Revised Volume No. 1

Effective Date: 08/01/2004, Docket: RP04-339-000, Status: Effective

First Revised Sheet No. 172 First Revised Sheet No. 172 : Effective

Superseding: Original Sheet No. 172

GENERAL TERMS AND CONDITIONS

(Continued)

18. REVENUE SHARING (Continued)

18.2 Adjustments to Annual Revenue Threshold Level. (Continued)

(b) The Annual Revenue Threshold Level of $177.3 million will be

increased by:

(1) The annual cost of service attributable to incremental

rate system expansions and/or other new transmission

facilities, excluding cost-of-service components

associated with general system costs to the extent

such cost-of-service components are already being

recovered as general and administrative expenses or

are related to the general plant within existing

rates, to be effective on the in-service date of the

expansion; and/or

(2) The net increase in total system revenues (revenues

from new service contracts, less reduced revenues from

existing service contracts at the lower rolled-in

rates) attributable to rolled-in rate system

expansions, to be effective on the in-service date of

the expansion.

days following the end of each 12-month period (or any

partial period at the end of the Settlement) to support any

adjustments to the Annual Revenue Threshold Level pursuant

to Sections 18.2(a) or (b) above. Such report will also

identify the Shippers receiving credits and the amounts

received.

18.3 Distribution of Credits. The amount to be credited to the

Shippers will be distributed within 90 days following the end of

each twelve-month period (or any partial period at the end of the

Settlement) to each primary and replacement firm Transportation

Shipper paying maximum rates on an annual or seasonal basis, pro

rata based on the total maximum rate revenues received from each

Shipper for the revenue sharing period, excluding revenues from

ACA and any other surcharges approved by the Commission. For the

purpose of determining whether a Shipper is paying maximum rates,

the reservation/demand charges paid by a Replacement Shipper will

be attributed to the Releasing Shipper if the Replacement Shipper

is paying less than maximum rate.