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FERC Orders Investigation of Southwest Gas Storage Rates

FERC Thursday set for evidentiary hearing and instituted a Section 5 investigation of Southwest Gas Storage's rates for jurisdictional storage services, which shippers on affiliate Panhandle Eastern Pipe Line, industry associations and customer advocate groups allege are "unjust and unreasonable."

The "Panhandle complainants" in their November complaint alleged that unreasonable rates have allowed Southwest Gas Storage to over-recover its costs by nearly 60% [RP07-34]. FERC ordered Southwest Gas Storage to file a cost-and-revenue study within 45 days.

While the agency granted complainants' request for an evidentiary hearing and Section 5 investigation, it denied their plea for an immediate interim rate reduction of about $16.9 million. However, FERC said that if the cost-and-revenue study to be filed by Southwest Gas Storage does not support the company's current rates, it will order an immediate rate reduction down to a level that is justified by the study.

And the evidentiary hearing before an administrative law judge would consider whether a further rate reduction would be justified, said a member of the Federal Energy Regulatory Commission's staff.

Southwest Gas Storage is a wholly-owned subsidiary of Panhandle Eastern and provider of the majority of underground storage capacity used by Panhandle in rendering both jurisdictional transmission services and a variety of storage services. Panhandle currently is the sole firm customer of Southwest Gas Storage, holding a firm contract for 61 Bcf of storage capacity (essentially the entire capacity of Southwest Gas Storage), and pays Southwest $45 million for those services.

"Under the Panhandle complainants' analysis, a revenue requirement for Southwest Gas utilizing a 13.25% [return on equity]...could reduce Panhandle's annual payments to Southwest Gas by approximately $16.9 million. The interim rate reductions ultimately should flow through to Panhandle's ratepayers," the parties said in their complaint.

The parties to the complaint include American Forest & Paper Association, American Iron and Steel Institute, American Public Gas Association, Anadarko Petroleum Corp., Anadarko Energy Services Co., Citizens Utility Board of Illinois, ConocoPhillips, ExxonMobil Gas & Power Marketing, Independent Petroleum Association of American and the Process Gas Consumers Group.

They said a probe of Southwest's rates was long overdue. "Like the cicada, Southwest Gas has been 'underground,' absent from any general rate investigation before the Commission for some 17 years."

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