To: Editors, News Directors

Date: June 27, 2002

For: Immediate Release

ACC Comments at CPUC Meeting on Proposed Pipeline Rulemaking
Continuing Vigorous Defense of AZ Pipeline Capacity

PHOENIX – Today the Arizona Corporation Commission sent a representative of its Utilities Division to a California Public Utility Commission (CPUC) meeting to oppose a proposed rulemaking docket. The rulemaking proceeding being contemplated by the CPUC, in effect, bars California’s utilities from turning back any unused capacity on the El Paso Natural Gas pipeline for use by any customers outside of California.

If California moves forward, the rulemaking will adversely affect the available capacity for all ‘East of California’ gas users, particularly Arizona, in a proceeding at the Federal Energy Regulatory Commission (FERC).

Arizona regulators told California authorities that utility service to Arizona residents was "threatened by recent actions taken by the Federal Energy Regulatory Commission (FERC) when it determined that the 1996 El Paso Pipeline Settlement should be set aside, along with Arizona’s historic full requirements rights to El Paso’s transmission capacity. Without sufficient transmission capacity on the only pipeline available to provide gas to the majority of our citizens, reliable gas service to nearly a million Arizona customers is in jeopardy." The proposed CPUC rule would reduce Arizona’s access to natural gas even further than the level proposed by FERC.

A letter from the Arizona Corporation Commission’s Chairman Bill Mundell was read into the record at the CPUC meeting this morning. The Arizona Commission also requested that the letter be made part of the record in the proposed rulemaking proceeding. In spite of the Arizona Commission’s efforts, the CPUC voted 5-0 to move ahead with the rulemaking process. The link below will take you to the full text of the Chairman’s letter.

In reaction to the numerous issues that arose during California’s energy supply crunch, California authorities sought FERC’s intervention to change the way gas pipeline capacity is allocated to Arizona. Arizona currently has what are called "full requirements contracts" meaning that bulk gas users (and resellers of bulk natural gas such as Southwest Gas) have access to as much natural gas as is necessary to serve their consumers. In exchange for those access rights, Arizona entities paid millions of dollars to the El Paso system.

At a June 25 Open Meeting, Arizona’s Commissioners authorized the Commission’s legal staff to apply to FERC for a re-hearing on specific issues contained in FERC’s May 31, 2002 order. Major gas users such as Southwest Gas, Phelps Dodge, Citizens Arizona Gas Division, APS and ASARCO spoke out in support of the Arizona Corporation Commission’s action. The Arizona regulators, along with the other ‘East of California’ gas users, are requesting a re-hearing and clarification of the May FERC order. Several issues will be raised in the re-hearing request, including:

• The May 31 FERC order abrogates historic full requirements contracts that have been in place for more than 30 years. ‘East of California’ gas users and the Arizona Corporation Commission question whether FERC can essentially nullify those contracts without an evidentiary hearing.
• ‘East of California’ gas users and the Arizona Corporation Commission question the factual basis on which the FERC order is premised. The capacity assumed in the order is far greater than the amount the pipeline owner claims is actually available.
• ‘East of California’ gas users and the Arizona Corporation Commission believe that the May 31 order fails to give due consideration to the fact that Arizona users are captive dependents on the El Paso system. In contrast to Arizona, California has multiple sources of natural gas and thus is not captive to the El Paso system.

The request for re-hearing and clarification of the FERC order will be filed with FERC on or before July 1.