NOI on Arizona Natural Gas Infrastructure Strawman Proposal and Workshop

1
NOI on Arizona Natural Gas Infrastructure
Strawman Proposal and Workshop

• Comments of Sempra Energy Global Enterprises
• September 25, 2003

2
Sempra Energy Global Enterprises

• The Global Enterprises business units represent
  the nonutility lines of business of Sempra Energy
• Four major lines of business
• Sempra Energy Resources Power plant development
  and operations
• Sempra Energy International International
  energy operations and domestic LNG terminal
  development and operations
• Sempra Energy Solutions Retail services
• Sempra Energy Trading Wholesale energy and
  metals trading

3
Common Thread of Strawman

• Utilities must diversify their natural gas supply
  portfolios
• Gas storage is needed to provide reliability,
  flexibility and price stability
• Electric generation continues to consume greater
  levels of natural gas
• Reliance on interstate pipelines limits gas
  supply diversity and reliability
• A long term infrastructure plan needs to be
  developed

4
Policies Guidelines

• ACC should develop formal policies with flexible
  guidelines
• Policies should not be overly restrictive
• Policy development should be a dynamic process
• Policies should compliment FERC jurisdiction and
  activities
• ACC should be active in FERC proceedings related
  to supply and storage

5
Storage

• Storage meets critical utility objectives of
  supply and price increase strategies
• Storage allows utilities to improve reliability
• Storage would reduce price volatility
• ACC should create flexible policies initially to
  encourage storage development

6
Assume LNG in the Supply Mix

• Sempra Energy has received approval to construct
  an LNG terminal in Ensenada, Mexico and is
  expected to be operational in 2007 providing gt1
  Bcf/d to the Southwest
• There are at least three additional projects
  currently under development on the North American
  west coast
• Shell Ensenada Permit Process
• Marathon Tijuana Permit Process
• Mitsubishi Long Beach Permit Process

7
LNG Considerations

• The ACC should assume LNG to be a growing and
  viable supply source in the near term
• Arizona utilities should be required to have a
  percentage of LNG as part of their procurement
  strategy
• LNG will improve gas-on-gas competition and can
  stabilize supply reliability

8
Cost Recovery

• Recommend all prudent up-front infrastructure
  development costs be pre-approved as recoverable
• Storage costs should be addressed similar to
  pipeline capacity costs
• Performance based incentives could be considered

9
Other Considerations

• SEGE feels that the CATS approach to project
  choice and development is not the most effective
  means to both assess energy infrastructure and
  choose capital projects
• SEGE would like to assist the ACC in developing
  an integrated energy policy strategy formulated
  by Arizona energy stakeholders as a whole

10
Action Plan

• Develop a natural gas infrastructure action plan
  by year end 2003
• Hold technical workshop to narrow policy and
  guideline framework focusing on diversity of gas
  supply and infrastructure
• Define a timeline for implementation of the
  action plan