NOI on Arizona Natural Gas Infrastructure Strawman Proposal and Workshop Comments of Sempra Energy Global Enterprises September 25, 2003

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

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

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

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

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 >1 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

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

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

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

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