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State Regulators: Driven By Reliability

Can natural gas supply keep up with demand for power?
Fortnightly Magazine - November 2004

basin have been lower than prices in the Permian supply basin.

Traditionally, Arizona utilities have not sought, and the commission has not granted, pre-approval of cost recovery for participation in infrastructure projects. While the commission supports the traditional method as standard operating procedure, the unique and extraordinary circumstances present in Arizona's natural-gas infrastructure support the commission's consideration of pre-approved costs.

Q: What is next on the regional transmission organization (RTO) agenda in Arizona?

A: The commission and Arizona utilities have been and remain very active in shaping the direction of the WestConnect RTO. They, along with the other members, continue to evaluate changes and solutions on a cost-benefit analysis. Additionally, there has been significant discussion of seams issues among the three Western RTOs as well as the Western Interconnection.

WestConnect is still proceeding on a phased implementation basis. In the spring of 2004, the first step of implementation occurred where WestConnect supported and participated in WesTrans in an effort to bring about an OASIS system across the multiple participants' systems, including some outside of WestConnect's footprint, to create a transparent transmission reservation system in the West.

Next on WestConnect's agenda is its consideration of the proposal of how to make Transmission Transfer Capacity (TTC) calculations transparent. This has historically been done by the owner of each transmission line. Addressing this in an open forum should be helpful and would support the WesTrans common OASIS system.

Q: Does Arizona have enough gas and electric infrastructure to ensure service reliability, and are adequate incentives in place to encourage building new facilities?

A: The fire at the Westwing substation has highlighted the need to locate a power plant within or near a load pocket, as that bolsters reliability of the entire power grid. If there is an outage at a key power plant or transmission line, power from the strategically located plant fills the gap and keeps the entire power grid stable.

The reliability of Arizona's access to natural gas is the largest threat facing Arizona, as virtually all of Arizona's natural-gas supplies have been provided through the El Paso Natural Gas pipeline system. Natural gas supply is now critically low, and Arizona has no production, zero storage, and constrained and costly pipeline transport. Additionally, it is unclear at this time if or when a number of LNG and storage projects will be completed, further exacerbating the lack of supply and attendant price increases. Clearly, one of Arizona's most pressing needs is to diversify its fuel supply.

Q: What is the future of retail competition in Arizona for gas and electric consumers?

A: Arizona has effectively no retail-level electric competition. However, with the filing of the APS rate case, the issues of competitive transition charges, stranded costs, and shopping credits will be re-evaluated. Whether or not retail electric competition ever develops-I know that it cannot arise without a stable wholesale electric market. Arizona has done what it can in that regard. It is now up to FERC. Ultimately, however, I believe that a partnership will develop between the states and FERC that appropriately balances commercial

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