Hey FERC, AZ Faces Tight Pipe Capacity Too!

California doesn't have the patent on an overburdened natural gas pipeline infrastructure. The problems facing neighboring Arizona are equally, if not more, critical, state regulators contend.

The majority of Arizona shippers have access to only one interstate gas pipeline, the capacity-tight El Paso Natural Gas system, and there are no in-state gas storage facilities or gas production with which to supplement supplies in the event their deliveries are curtailed, the Arizona Corporation Commission (ACC) told the Federal Energy Regulatory Commission (FERC). That said, the state agency urged the Commission to view in a "wider regional context" the problems plaguing the pipe infrastructure in the Southwest, rather than analyze California in isolation [PL01-44]. "Failure to do so could lead to a worsening of regional problems and/or a shifting or spreading of problems from California to Arizona and other states."

As part of its ongoing attempt to deal with energy crisis in California, FERC is conducting a review of the state's pipeline infrastructure system to determine the extent of the need for more interstate capacity, the imbalance between interstate and intrastate pipeline capacity in California and the reasons for the abnormally high gas prices in the state for much of last year and part of 2001. In May, the ACC participated in a Commission-sponsored technical conference that addressed many of these issues.

The ACC said it is "increasingly concerned" about the ever-tightening pipeline capacity situation in Arizona and has nagging doubts about whether gas shippers in the state, with existing contract rights on El Paso, will receive reliable pipeline service in the future. "It is widely recognized that the El Paso system running through Arizona to California has been operating at very high utilization rates recently," and it appears that scant additional pipeline capacity will be added by El Paso in the near term--with the exception of its approved 230 MMcf/d Line 2000 expansion, the regulators noted.

"If there is insufficient investment in the pipeline infrastructure in the Southwest for a prolonged period, resulting in degradation of pipeline service to Arizona and other states, there could be widespread impacts on the cost and availability of natural gas and electric service and on the economy of the southwestern United States in general," the ACC warned.

The state's fears about the gas pipeline infrastructure come at a time when Arizona "is experiencing continued high population growth and the attendant business and industrial expansion." In addition to the growing gas needs of existing shippers in the state, the ACC reported that about 20 new gas-fired power generation facilities, representing about 21,000 MW, are being developed and constructed in the state. Most of the power plants, which will demand a "large amount" of gas, are located in areas served exclusively by El Paso, it noted.

"While provision of pipeline capacity to new shippers such as new natural gas-fired generation is important, the FERC should ensure that interstate pipelines...meet the existing contract rights of existing shippers with capacity expansions in addition to serving new shippers," the ACC said. This is especially critical for gas shippers in Arizona, the majority of which are "captive" to El Paso and have no other access to supplies, it noted.

"This contrasts with many other shippers in the Southwest, including many California shippers, who have multiple pipeline operations, available storage facilities and access to instate natural gas production....Captive shippers should not have to bear an additional economic burden as other shippers, who have numerous supply options, move on and off the El Paso system for economic benefit."

Given the "complexity of the issues" and the "potential for inadvertently exacerbating" the pipe capacity problems in the Southwest, Arizona regulators implored FERC to take a "careful and thorough approach" to the issues confronting it. "Recent history has shown that in time of shortage of a given commodity (such as pipeline capacity), great care must be taken in changing how that commodity is treated or there may be large and unanticipated negative consequences."

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