APS - Approval of Ratemaking Treatment Relating to Natural Gas Infrastructure

On April 9, 2004, Arizona Public Service Company ("APS" or "Company") filed an application with the ACC requesting  pre-approval of cost recovery for the Company's participation in Kinder Morgan Energy Partners, LP's ("Kinder Morgan") proposed Silver Canyon Pipeline Project.  The proposed pipeline will run roughly east to west across Arizona from Window Rock (just north of Interstate 40 on the New Mexico state line) to Ehrenberg (just north of Interstate 10 on the California state line).    

In the application, the Company stated that the agreement with Kinder Morgan will provide APS with access to currently less expensive natural gas in the Rocky Mountain supply basin.  This will be in addition to the natural gas supplies that APS now receives through pipelines operated by El Paso Corporation.  In addition to seeking pre-approval of the Company's additional capacity costs in the Silver Canyon Pipeline, APS is also asking that these new costs be recovered from ratepayers through a Power Supply Adjuster ("PSA") mechanism  that is being proposed in the Company's rate case application that is presently before the ACC.  In the event that the PSA is not approved in the pending rate case proceeding, the Company will seek an accounting order that will allow it to record the pipeline costs in a separate deferral account.  APS will then seek recovery of the costs in a future rate case proceeding.

APS filed the application pursuant to an ACC policy statement issued on December 18, 2003, in which the Commission recognized that the current need for additional natural gas infrastructure in Arizona  warranted the consideration of pre-approval of costs and the adoption of alternative cost recovery methods.  A similar request by Southwest Gas Corporation was approved by the Commission on June 24, 2004.

RUCO filed a motion to intervene on May 10, 2004 and hosted two meetings with ACC staff and representatives from APS prior to the filing of the staff report on the matter.  On August 16, 2004, ACC Staff filed its Staff Report and proposed order in the docket.  During the regular open meeting held at the ACC's Phoenix office on Tuesday, August 31, 2004, the five Commissioners approved APS' request for pre-approval of cost recovery.

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