Shippers shot Southern Natural’s proposed rate increase full ofholes this week at FERC. Wholesale and retail marketers, municipaland investor-owned utilities, industrial gas users and gasproducers alike told FERC to deny Sonat’s request that theincreased rates be made effective Oct. 1. There was a unanimouscall for hearings and a suspension of the filing for the fullfive-month period subject to refund.

Southern proposes a cost of service increase of $82 million to$363 million. The company wants to increase is rate base by $433million because of pipeline and compressor replacements andrelocations, a new $29 million computer system and GISB compliance,and $272 million in expansion costs, including $103.5 million forits North Alabama expansion project which went 50% over budget.Southern also proposes an increase in its rate of return to 10.81%,predicated on a 13% return on equity, which is one percentage pointhigher than Sonat’s existing ROE and slightly higher than FERCtypically has allowed for other pipes.

One aspect of the rate increase that has caused a great deal ofalarm is the disproportionate rate impact on the different ratezones on Southern’s system. For example, there is a 10% increase inthe reservation rate in zone three and a 9% increase in zone two,but reservation rates would increase only slightly in theproduction area and actually would decrease in zone one, accordingto Atlanta Gas Light and Chattanooga Gas. A large group of Alabamaand Georgia municipal gas distributors, the investor-owned LDCs andothers have said the disproportionate impact is a clear indicationSonat is laying the heaviest burden on its captive customers.

“There is no justification for this mammoth cost shift; itsobvious purpose and dramatic effect are to shift costs to smallcaptive customers to allow Southern to charge lower rates tocustomers in competitive markets,” the Alabama and Georgia munistold FERC in their protest. The munis claim Southern is shiftingthe cost burden of its expansion projects onto small captivecustomers, which make up only 1% of its customer base, in responseto an “ominous downward spiral” in capacity contracting and heavyrate discounting. “This situation cries out for the Commission torequire Southern to transition away from [straight fixed-variable]rates so that the pipeline will recover substantial costs throughits commodity rates.”

According to AGL and Chattanooga, Southern’s rates already were”more than twice as high as Transco’s [comparable rates]…Southern can charge so much to Zone 3 customers because it faceslittle or no competition for the vast majority of loads in Zone 3.”

The LDCs also note that while Southern included its expansioncosts for a project that isn’t yet in service, it did not includean estimate or the expected impact of cost savings from itsproposed merger with El Paso, which is expected to be completedsoon. Sonat and El Paso previously said the merger would result in$60 million in annual savings. Shippers believe they should seesome of those savings in the form of lower rates.

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