Arizona’s regulatory commission last week pre-approved Arizona Public Service’s (APS) request to get close to half of its future natural gas supplies from the proposed Kinder Morgan Silver Canyon interstate transmission pipeline, which will bring gas from New Mexico’s San Juan Basin and from the northern Rockies via a connection with TransColorado Gas Transmission.

The move by the Arizona Corporation Commission (ACC) is its second pre-approval for the proposed new gas pipeline. An ACC spokesperson said the order “mirrors” a similar one approved earlier in the summer for Las Vegas-based Southwest Gas Corp. to take an equity position in the 750 MMcf/d pipeline that likely will interconnect with a number of Southwest pipelines, including North Baja, El Paso Natural Gas, and Southern California Gas Co. The Pinnacle West Capital APS utility historically has depended on El Paso for much of its gas supply.

The five-member elected ACC has a current policy of “encouraging new pipeline infrastructure development,” the commission spokesperson said, and last week’s action was consistent with that policy. Regulators have said they would welcome more competition to mitigate wholesale price increases, and the Kinder Morgan pipeline could eventually open up Arizona to Rocky Mountain supplies.

State regulators are not excluding other future competing proposals to the Kinder Morgan pipeline, the ACC spokesperson said. APS estimated that its overall gas costs would go up as much as 2.4% or $323 million, in three years and a lesser percentage between then and 2015, under the proposed confidential Kinder Morgan capacity deal, which would represent 41% of the electric utility’s gas needs in the future.

ACC regulators view the pre-approval as insurance against the gas-fired power plants in various load centers, such as Phoenix, being caught short of fuel in the event of a supply crunch.

“Should this project go forward and be built, this (ACC) action is consistent with the commission’s policy for encouraging infrastructure development for new natural gas supply,” the ACC spokesperson said. “It allows APS to exercise a price it has locked in that is confidential, if the project does, in fact get built.”

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