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 municipality, Colorado City, AZ. Hesaid Questar insists that transporting gas for resale to theArizona municipality would jeopardize its protection under theHinshaw Amendment, which exempts the LDC’s interstatetransportation of natural gas from FERC jurisdiction as long as allof the gas is consumed within Utah state boundaries. Colorado Cityis located near 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.”

“We’ve offered to serve Colorado City and its sister bordercity, Hildale [in Utah], both as firm transportationcustomers…like we do other towns in Utah, Idaho and Wyoming, butas their local distribution company. They’re not interested inthat. They want to set up a municipal system.” In fact, Questar hasoffered to seek a 7 (f) exemption that would allow it to serveColorado City and still maintain its Hinshaw exemption to theNatural Gas Act, he said.

Questar Gas “is trying to serve all the loads themselves, andthey don’t want any competition” in Utah and surrounding states,said Wheatley. He believes the Hinshaw exemption has given QuestarGas the wherewithal to stifle competition in the region at thedistribution level. “I think the main problem is…that they got anexemption which makes them immune from selling to an entity thatwould prefer to resell the gas to their own consumers, creatingcompetition.”

Colorado City has asked FERC to issue a declaratory order onwhether it has jurisdiction in the case. Specifically, it wants theCommission, among other things, to order Questar Gas to transportgas for resale over its system to outside of Utah, while at thesame time allowing it to retain its Hinshaw status. Questar Gaswould transport gas from interstate pipelines, such as QuestarPipeline or Northwest Pipeline, to Hurricane, UT, at which point itwould be delivered by the City of Hildale, which has constructed apipeline, to the Arizona-Utah border, where it would then be pickedby Colorado City.

“The Hinshaw Amendment doesn’t let them [Hinshaw-exempt LDCs]voluntarily agree to sell gas outside the state, but the FERC canorder them to transmit outside the state if it’s essential to dothat in order to have interstate gas reach various places thatotherwise wouldn’t have any gas service,” Wheatley said. “I’masking FERC to do what I think it has authority to do – to orderthe interstate gas to be delivered to the person that’s asking forit. If FERC orders it, I don’t think that issue will necessarilyhave any adverse impact on their [Questar’s] Hinshaw status insideUtah.”

In the meantime, Colorado City has been keeping a close watch ona case now pending before the Utah Public Service Commission, wherethe City of Hildale filed a complaint after Questar Gas refused totransport gas for resale to its planned municipal system, eventhough it will be located within Utah. Questar has supplied Hildalewith gas for its power plant. But when “Hildale said ‘we’d alsolike to set up a distribution system down here,’ …Questar saidthat ‘they were not going to transport gas to it,'” Wheatley noted.

In the state case, Questar Gas can’t argue it would violate itsHinshaw exemption by transporting gas for the Hildale municipalsystem, he said. FERC issued a declaratory order about a year agothat stated Questar Gas could sell gas in Utah for resale and stillmaintain its Hinshaw protection, Wheatley pointed out.

If Utah regulators order Questar Gas to transport gas over itssystem to customers that seek to purchase it and resell it fordistribution, “then that would be a solution” for Hildale andpossibly even Colorado City, he said. In the event the statecommission doesn’t order this, then Questar Gas could risk losingits Hinshaw exempt making it subject to FERC jurisdiction, Wheatleybelieves. Such a ruling would be to Colorado City’s benefit sinceit would eliminate Questar’s Hinshaw argument altogether, he said.

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