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Collaborative Commercial Proposal for Pipeline Project between Sun Devil and APS

This proposal outlines a strategic partnership between Sun Devil and APS for the development of a 490-mile pipeline from the San Juan Basin to Phoenix, AZ. The project aims to minimize costs and environmental impact while maximizing the value of existing assets. Key design features include 36-inch diameter pipe, five new compressor stations, and a capacity of 780,000 MMBtu/d. Targeting an in-service date in Q3 2004, the project offers competitive rates and low-cost expandability, ensuring a reliable and flexible gas supply for the region.

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Collaborative Commercial Proposal for Pipeline Project between Sun Devil and APS

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  1. Sun Devil Commercial Proposal for Pinnacle West / APS January 10, 2002

  2. Goal • Collaborate with APS / PWE to create the most commercially viable project possible • Minimize project costs and risks • Minimize environmental impact • Maximize value of existing assets • Earliest in-service date

  3. System Design • 490 mile pipeline system from San Juan Basin to Phoenix, AZ • 36 inch diameter pipe • 5 new compressor stations • Mods at 4 other compressors • 1200 Psig

  4. Base Case • 780,000 MMBtu/d San Juan receipts • 500,000 MMBtu/d Phoenix deliveries • 4.75% fuel • Capex $0.9B (2001 $) • Pipeline assumes cost overruns • Low cost expandability (up to another 500,000 MMBtu/d)

  5. Rate Assumptions • In-service Q3 2004 • 80/20 Debt/equity ratio • 8.8% WACC • O & M escalation rate 3.0% • Shipper contracts - 30 years, renewable

  6. Possible Rate Enhancements • Firm Park ‘N Ride capability (subject to FERC) • 3 to 5 day duration swings • Up to X volume of MDQ • Rate very competitive to storage alternative • R-O-W cost reduction via alternative routes to EP south system • AZ gross receipts tax concessions • Shipper shares in any Capex reduction • Depreciation bullet if contract not renewed

  7. Sun Devil Advantages • Experienced western operator / builder • Market / Supply area flexibility • Cal Border, Panhandle, W. Texas • Pressure guarantee • Swing capability • Expedited project schedule versus alternatives • Rockies / SJ production access

  8. Next Steps • Execute precedent agreement • APS can opt out of contract up to FERC filing • Reimburses TW for FERC filing costs • Proportional amount based on contract and timing • Option cost increases after FERC filing • Project stays on-track to meet plant requirements

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