Invoking a new policy, albeit with conditions, the Arizona Corporation Commission (ACC) late last month pre-approved Southwest Gas Corp.’s participation in a proposed 750,000 Dth/d interstate natural gas pipeline that Kinder Morgan intends to build from the San Juan Basin to the Phoenix area and then West to the California border. Arizona’s deep thirst for new gas supplies prompted the move, regulators indicated in approving the gas utility’s pre-approval request.

Arizona regulators are concerned about the availability of wholesale natural gas supply and price volatility, and they are trying to mitigate that worsening situation. “It hasn’t been easy to deal with consumer impact of the higher natural gas prices of recent years,” said ACC Chairman Marc Spitzer. “Higher costs mean higher rates. What we see here today is the supply industry, the utility industry and ratepayer groups in full agreement that something must be done to increase supply.”

In a prepared statement issued late June 25, the ACC reiterated that it has no jurisdiction or direct involvement in permitting the proposed $950 million Silver Canyon pipeline project, which would enter Arizona from its eastern boundary along Interstate 40, roughly paralleling the northern pipeline system of El Paso Natural Gas Co. to a point east of Flagstaff, AZ, and then south to Phoenix.

“We have spoken publicly about the need for increased natural gas supply,” ACC Commissioner Jeff Hatch-Miller said. “By participating with other groups in the review process, we will look to ensure that the people, plants and animals along the right-of-way are safe and not adversely impacted by the addition of this needed supply.”

Another regulator, Commissioner Kristin Mayes, urged proponents of the pipeline to make “early and frequent” contact with the local communities in which the pipeline will traverse.

The ACC’s action allows Southwest Gas to “recover prudent costs” associated with securing additional gas supplies. It is carefully constructed so the state commissioners are not in a position of endorsing the Silver Canyon pipeline proposal, an ACC spokesperson said. The ACC approval gives Southwest pre-approval for “specific charges related to the block of pipeline capacity” the gas utility plans to acquire if Silver Canyon is ultimately approved and built.

Arizona regulators, however, are intent on securing new gas supplies for the state because virtually all of the state’s supplies historically have come from El Paso Corp., and there is a significant increase in demand due to the new gas-fired electric generation plants and the constrained gas pipeline infrastructure in the state, where coal and nuclear have traditionally carried large power generation loads.

The 455-mile Silver Canyon project would connect with TransColorado Gas Transmission, also owned by Kinder Morgan, in New Mexico and bring gas from the Northern Rockies and the San Juan Basin south to Phoenix.

Silver Canyon President Steve Harris said the pipeline company also has signed gas transportation agreements with Arizona Public Service (APS) and the Mesa City Council, but it must have signed contracts with at least two other large Phoenix customers before it can file an application with the Federal Energy Regulatory Commission, he said.

Nevertheless, Harris said he’s confident all the pieces will come into place in the next several months. Arizona regulators are expected to make a similar ruling in the next few weeks on the APS contract.

“They filed that several months ago,” said Harris. “The commission has been reviewing it, and we pretty much expect that to go the same way. Between those two utilities and other parties that we are negotiating with at this point in time, I would say that a significant portion of the total capacity on the pipeline is under contract.”

He noted that Arizona desperately needs pipeline competition and a larger source of cheaper Rocky Mountain gas supply. Currently Phoenix is only served by El Paso Natural Gas. There are several competitors to Silver Canyon, including the Picacho Pipeline and a project proposed by Transwestern Pipeline. But Harris claims Silver Canyon is the only project so far with signed agreements with Arizona’s largest utility companies.

“At this point we are in a much better position than any other competitor out there because we are so much farther along, having gotten the two major [utilities] to commit,” said Harris. “There really isn’t enough load at this point to have two new pipelines built so basically it’s whoever can get to the market first and sign it up…”

He said about 450,000 Dth/d of the gas that would travel on Silver Canyon probably would be delivered to customers in the Phoenix area with the remaining 300,000 Dth/d going to the California border and possibly south to Mexico on the North Baja pipeline or into Southern California on the SoCalGas pipeline system.

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