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Arizona Muni Accuses Questar of Dampening Competition

Arizona Muni Accuses Questar of Dampening Competition

An Arizona municipality, which seeks to start up its own gas distribution system, has accused an out-of-state distributor of hiding behind its Hinshaw status to justify its refusal to transport interstate gas for resale to the municipal's potential customers. Without the distributor's transportation link, the municipal says its dream of its own system will fizzle. The distributor, on the other hand, contends that its denial of transportation service is strictly a business decision.

Questar Gas, an affiliate of Questar Corp., "just likes to do all the distribution themselves, I think, and they don't like any competition" from municipal gas systems, remarked Charles F. Wheatley Jr., attorney for the muni, Colorado City, AZ. He said Questar Gas insists that transporting gas for resale to the Arizona muni would jeopardize its protection under the Hinshaw Amendment. This excuses from FERC jurisdiction an LDC's interstate transportation of gas or its sale for resale of gas received within or at the state boundary as long as all of the gas is consumed within the state. Questar's operations primarily are in Utah, while Colorado City is located just south of the Arizona-Utah border.

That - the loss of Hinshaw protection - had been Questar's argument in the past against transporting gas for resale to Colorado City, "but that's not the primary argument" now, said spokesman Chad Jones. "The primary argument is that we have no provision in our [state] tariff to sell transportation gas for resale to end-use customers. We're not in that business, never have been."

For Questar Gas, "it's not a regulatory issue; it's an internal business decision," although Jones acknowledged "we're still looking at some of the regulatory ramifications" of the case. "We don't sell gas for resale. We sell gas to end-use customers - industrials, commercials and residents. It's just not something we're interested in doing right now," he said.

"We've offered to serve Colorado City and its sister border city, Hildale, both as firm transportation customers...like we do other towns in Utah, Idaho and Wyoming, but as their local distribution company. They're not interested in that. They want to set up a municipal system." In fact, Questar has offered to seek a 7 (f) exemption that would allow it to serve Colorado City and still maintain its Hinshaw exemption to the Natural Gas Act, he said.

The City of Hildale, which is located within Utah, lodged a complaint with state regulators after Questar Gas declined to provide it with resale service so that it, too, could set up its own municipal distribution system. "...[W]hen a company can refuse to sell it for resale inside the state, I think there's a major problem," Wheatley commented. The case is pending before the Utah Public Service Commission.

Questar Gas "is trying to serve all the loads themselves, and they don't want any competition" in Utah and surrounding states, he said. He believes the Hinshaw exemption has given Questar Gas the wherewithal to stifle competition in the region at the distribution level. "I think the main problem is...that they got an exemption which makes them immune from selling to an entity that would prefer to resell the gas to their own consumers, creating competition."

Colorado City has asked FERC to issue a declaratory order on the issue of whether it has jurisdiction in the case. Specifically, it wants, among other things, permission to file an application requesting the Commission to direct Questar Gas to transport gas for resale over its system to outside of Utah - without it jeopardizing the LDC's Hinshaw status. A favorable decision would require Questar Gas to transport gas from intertate pipelines, such as Questar Pipeline or Northwest Pipeline, to Hurricane, UT, at which point the gas would be delivered by the City of Hildale over its pipeline to the Arizona-Utah border, where it would then be picked by Colorado City. In the end, Questar Gas still would possess its Hinshaw exemption. Susan Parker

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