To: Editors, News Directors

Date: October 25, 2002

For: Immediate Release

Commissioners Grant Welcome Relief for Winter Gas Bills
Surcharge "Holiday" Means Citizens Arizona Gas Customers will See Lower Gas Bills During Critical Winter Months

PHOENIX - The Arizona Corporation Commission acted yesterday to grant a reprieve from a gas surcharge that appears on Citizens Arizona Gas bills. The relief will be welcome news to customers in Citizens' Northern and Southern Arizona service areas because it will come during winter when gas consumption and gas bills are at their peak. In a unanimous decision, Chairman Bill Mundell and Commissioners Jim Irvin and Marc Spitzer voted to change the Citizens surcharge in time for the winter heating season.

The Commission action makes two changes to the purchased gas adjustor:

1. The Commission granted a "Surcharge Holiday" during the months of January and February. Customers will not be billed for the surcharge during these two months. The Commission's decision will reduce average January bills from $92.00 to $68.00. February bills would drop from an average of $74.00 to about $55.00. (see charts below)

2. The Commission cut the surcharge in half during the months of December and March. December bills averaging about $82.00 would drop to about $70.00 and March bills are likely to reflect a moderate rise over the prior month's bill with the half surcharge. Those bills would go from $52.00 to about $60.00. (see charts below)

The above figures are based on historical averages and an unseasonably cold winter or a cold snap during other months could skew these projections. Customer bills vary greatly depending on weather conditions, the size of the customer's home, insulation values and factors such as personal temperature preferences or the efficiency of a customer's heating equipment.

The above figures are based on historical averages and an unseasonably cold winter or a cold snap during other months could skew these projections. Customer bills vary greatly depending on weather conditions, the size of the customer's home, insulation values and factors such as personal temperature preferences or the efficiency of a customer's heating equipment.

What Exactly is a Purchased Gas Adjustor and Why Are Adjustors Used?

Natural gas is traded on the commodity markets and prices cycle from highs to lows like other commodities such as oil, coal or gold. When companies have to pay sharply higher prices to buy the gas for their customers - called "undercollecting" - companies can request a temporary surcharge until prices normalize.

At the time the Commission approved the surcharge for Citizens' customers, natural gas prices were very high and it was uncertain when gas prices would normalize. The purchased gas adjustor surcharge will go away once the company recovers the undercollected amount. The Commission projects that Citizens' surcharge will end in September 2003. The purchased gas adjustor balances for all Arizona gas companies are reviewed on a monthly basis. If the balance reaches zero before September, the surcharge will be lifted.

Why Did the Commission Take This Action?

"The savings from the Surcharge Holiday and the reduced surcharge in December and March should be welcome news to Arizona customers, particularly because the changes take effect during what are typically the coldest months," Chairman Mundell said. "I originally suggested the holiday surcharge relief because I was concerned that the holiday season and the heating season occur when people are struggling to pay their other bills."

"We want customers in Mohave and Santa Cruz counties as well as the other parts of Citizens' service territory to know that we heard you loud and clear," Commissioner Spitzer said. "When we held public comment sessions in your areas, we heard your concerns about budget-breaking winter gas bills. We are happy that we could grant some relief for the upcoming winter by modifying this billing component."

Commissioner Irvin elaborated by comparing Arizona to other states. "These types of surcharges are used in many other states and are an accepted means of recovering gas costs. But what we see in Arizona is a relatively flat consumption profile during the spring, summer and early fall and then a spike in usage during the winter. By modifying this accepted tool to Arizona's circumstances, we were able to provide real, meaningful relief to Citizens' customers."

What Else is the Commission Doing About Gas Costs?

The Commissioners directed their staff to examine other scenarios that could be used for future purchased gas adjustor surcharges. One possibility is to adopt a "circuit breaker" approach in which the surcharge would apply to the first "X" number of therms with no surcharge on the therms exceeding that level. Commissioner Spitzer first proposed this approach in a letter that sparked the review of the Citizens surcharge.

"It's not a matter of just giving people some relief, it's a matter of protecting people from a hardship," Commissioner Spitzer said.

The Commissioners also encouraged customers who have a hard time affording monthly fluctuations in their bills to consider the levelized payment plans offered through the utilities.

The Arizona Corporation Commission continues to monitor gas prices and trends to determine if it can take other steps to reduce costs to consumers.

It is important to note that gas companies are not allowed to make a profit on the cost of natural gas. Customers pay the gas company for the fuel they use on a dollar-for-dollar basis. A company earns a rate of return based on the costs of delivering gas to customers. The cost of putting the pipe in the ground, maintaining the meters, having crews available to respond at a moment's notice to an emergency, training and all other expenses are examined during a rate case.

Charts

Northern Arizona Division - Monthly Bill at Average Consumption

Santa Cruz Division - Monthly Bill at Average Consumption