An Arizona municipality, which seeks to start up its own gasdistribution system, has accused an out-of-state distributor ofhiding behind its Hinshaw status to justify its refusal totransport interstate gas for resale to the municipal’s potentialcustomers. Without the distributor’s transportation link, themunicipal says its dream of its own system will fizzle. Thedistributor, 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 doall the distribution themselves, I think, and they don’t like anycompetition” from municipal gas systems, remarked Charles F.Wheatley Jr., attorney for the muni, Colorado City, AZ. He saidQuestar Gas insists that transporting gas for resale to the Arizonamuni would jeopardize its protection under the Hinshaw Amendment.This excuses from FERC jurisdiction an LDC’s interstatetransportation of gas or its sale for resale of gas received withinor at the state boundary as long as all of the gas is consumedwithin the state. Questar’s operations primarily are in Utah, whileColorado City is located just south of the Arizona-Utah border.

That – the loss of Hinshaw protection – had been Questar’sargument in the past against transporting gas for resale toColorado City, “but that’s not the primary argument” now, saidspokesman Chad Jones. “The primary argument is that we have noprovision in our [state] tariff to sell transportation gas forresale to end-use customers. We’re not in that business, never havebeen.”

For Questar Gas, “it’s not a regulatory issue; it’s an internalbusiness decision,” although Jones acknowledged “we’re stilllooking at some of the regulatory ramifications” of the case. “Wedon’t sell gas for resale. We sell gas to end-use customers -industrials, commercials and residents. It’s just not somethingwe’re interested in doing right now,” he said.

“We’ve offered to serve Colorado City and its sister bordercity, Hildale, both as firm transportation customers…like we doother towns in Utah, Idaho and Wyoming, but as their localdistribution company. They’re not interested in that. They want toset up a municipal system.” In fact, Questar has offered to seek a7 (f) exemption that would allow it to serve Colorado City andstill maintain its Hinshaw exemption to the Natural Gas Act, hesaid.

The City of Hildale, which is located within Utah, lodged acomplaint with state regulators after Questar Gas declined toprovide it with resale service so that it, too, could set up itsown municipal distribution system. “…[W]hen a company can refuseto sell it for resale inside the state, I think there’s a majorproblem,” Wheatley commented. The case is pending before the UtahPublic Service Commission.

Questar Gas “is trying to serve all the loads themselves, andthey don’t want any competition” in Utah and surrounding states, hesaid. He believes the Hinshaw exemption has given Questar Gas thewherewithal to stifle competition in the region at the distributionlevel. “I think the main problem is…that they got an exemptionwhich makes them immune from selling to an entity that would preferto resell the gas to their own consumers, creating competition.”

Colorado City has asked FERC to issue a declaratory order on theissue of whether it has jurisdiction in the case. Specifically, itwants, among other things, permission to file an applicationrequesting the Commission to direct Questar Gas to transport gasfor resale over its system to outside of Utah – without itjeopardizing the LDC’s Hinshaw status. A favorable decision wouldrequire Questar Gas to transport gas from intertate pipelines, suchas Questar Pipeline or Northwest Pipeline, to Hurricane, UT, atwhich point the gas would be delivered by the City of Hildale overits pipeline to the Arizona-Utah border, where it would then bepicked by Colorado City. In the end, Questar Gas still wouldpossess its Hinshaw exemption. Susan Parker

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