March 14, 2003

In Hildale, Utah, the City’s own natural gas utility provides service to its residents and businesses. Natural gas is plentiful and inexpensive in Hildale. Across the street in Colorado City, Arizona, however, there is no natural gas utility. There is, in fact, no natural gas even available in Colorado City, whose residents must make do with limited supplies of more expensive, trucked-in propane, while gazing wistfully across the border at their Utah neighbors.

Hildale and Colorado City, along with Kanab, Utah, and Freedonia, Arizona, are caught up in a regulatory briar patch that prevents natural gas from crossing the state line into Arizona. Hopefully, however, things will begin to change on Friday, March 14^th, when these Utah and Arizona communities will square off against Questar Gas Company and the Federal Energy Regulatory Commission before the District of Columbia Circuit Court of Appeals.

It all started over a decade ago when Hildale and Colorado City constructed a natural gas pipeline from the nearest source of natural gas, in Hurricane, Utah. The Questar Gas Company’s intrastate pipeline transports gas from Indianola, Utah, through Hurricane and on to St. George. After constructing the 22 mile pipeline from Hurricane to an electrical generating plant in Hildale, the cities began considering the creation of a municipal utility to provide natural gas in both Hildale and Colorado City, whose residents had never enjoyed natural gas service.

Municipal natural gas utilities, which are common in many parts of the Country, are fairly rare in Utah. The first municipal natural gas utility was created only a dozen years ago by the Juab County communities of Nephi, Mona, and Levan. Since that time, Blanding, Eagle Mountain, and Santaquin, along with Hildale, have created municipal natural gas utilities.

According to Salt Lake attorney J. Craig Smith of Smith Hartvigsen, PLLC, who worked with many of the communities which have created natural gas utilities, Questar Gas Company was initially cool to the concept. "I don’t think Questar initially had an appreciation for the concept. However, I think that there is now a greater understanding by Questar of the role that municipalities can play in providing natural gas in rural areas, similar to rural telephone cooperatives, where distances are great, customers few, and profit opportunity small."

Settlement of a proceeding before the Utah Public Service Commission establishing a municipal transportation tariff has led to the present hearing before the District of Columbia Circuit Court of Appeals, often considered the second most powerful court in the nation. The municipalities along the Utah/Arizona border will ask the D.C. Circuit Court at this hearing to overturn a determination by the Federal Energy Regulatory Commission (usually called "FERC") that municipal transportation of gas across the Utah/Arizona border would subject Questar Gas Company’s Utah system to federal regulation.

Questar Gas Company, however, does not want its Utah pipeline system, which transports the natural gas piped to Hildale, to become subject to Federal regulation. Unfortunately, when the issue first arose, it was unclear, according to Smith, "whether FERC would assert jurisdiction over Questar’s Utah system if the Hildale System were extended across the state line into Colorado City, or if a pipeline were extended from Hildale to Kanab, which by necessity of terrain would have to cross into Arizona before returning to Utah."

This uncertainty led to a joint petition between both Questar Gas Company and various communities which have banded together to form the Intermountain Municipal Gas Agency (the "IMGA"), an interlocal cooperative entity, seeking a declaratory order from FERC clarifying the regulatory issues.

Unfortunately, FERC ruled in 2001 that even a pipeline running only between two cities in Utah, from Hildale to Kanab, if it crossed into Arizona at any point, would trigger federal regulatory jurisdiction. "We analyzed the FERC ruling and we concluded it was wrong" said Smith. "We decided to appeal the matter to the District of Columbia Circuit which regularly reviews the decisions of Federal Agencies."

On Friday, the District of Columbia Circuit will hold a hearing on the appeal. The municipalities through IMGA will argue that congress built exceptions into the Natural Gas Act, which established the regulatory scheme, to allow municipalities to transport natural gas across state lines without triggering federal regulation.

According to Smith, Congress provided exceptions both for municipalities and for local distribution. "We believe that FERC is trying to expand its jurisdiction beyond what Congress intended. That’s the argument we’ll make to the Court."

For further information, contact:

Scott M. Ellsworth, Telephone No.: 801-413-1600