The self-styled "Panhandle complainants" and regulators from Michigan, Kansas and Missouri last week protested Southwest Gas Storage's filing of a Section 4 rate hike, which they contend is designed to intentionally thwart FERC action in an ongoing Section 5 complaint case in which customers have accused the storage provider of charging excessive rates.

The Panhandle complainants last Monday also renewed their call for FERC to grant them interim rate relief and to take action in their complaint against Southwest Gas before the proposed rate increase can take effect in early 2008. Failure to do the latter could moot the complaint proceeding, according to the complainants and Midwest regulators. Southwest Gas's rate filing injects a sense of urgency into the complaint proceeding, they contend. The complainants include shippers on Southwest Gas affiliate Panhandle Eastern Pipe Line, industry associations and customer advocacy groups.

"Unless the Commission acts on pending requests for interim rate relief prior to the effective date of rates [in Southwest Gas Storage's rate proposal]...Southwest Gas Storage may take the position that the Section 5 [complaint] proceeding is moot because the Section 5 proceeding cannot establish a rate no longer subject to refund before the new rates take effect," the complainants said.

"Permitting a regulated utility to avoid potentially adverse results of litigation by kicking over the chessboard on the eve of trial to improve its odds is incompatible with [the] objective" of protecting customers from excessive rates, they said. "Only the Commission through prompt and effective action can ensure that Section 5 remains a viable alternative to correct unjust and unreasonable rates, terms and conditions of service."

This latest activity come just two weeks after Southwest Gas filed its Section 4 proposal to increase existing storage service rates by $4.7 million [RP07-541]. Complainants believe the rate proposal by Southwest Gas is intended to head off a FERC ALJ hearing into the complaint case, which was scheduled to begin later this month but has been postponed for a month [RP07-34].

"The sole purpose of the [rate] filing is to moot the current Section 5 complaint proceeding. If the Commission gives its blessing on the rate increase, [Southwest Gas] will have successfully pulled the wool over the Commission's eyes," said the Kansas Corporation Commission (KCC) in a protest submitted to FERC.

"The KCC views the general rate increase application filed by [Southwest Gas] as nothing more than an attempt to circumvent the Section 5 complaint, which may yield a less favorable result" for the company, the state regulators said. Most of the parties urged FERC to reject the proposed rate increase. In the alternative, they recommended that the Commission consolidate the Section 4 and 5 proceedings to ensure that a "viable avenue for relief from unjust and unreasonable rates remains in effect."

Southwest Gas responded to its opponents, saying a "Section 5 complaint cannot be used...to deny or restrict Southwest Gas Storage's Section 4 statutory rights." It further noted that the "pendency of the Section 5 complaint...appears to be the motivation for the misguided motions" seeking to reject its proposed rate increase.

Both the Missouri Public Service Commission (PSC) and the Michigan PSC last week asked FERC to omit an initial decision by an administrative law judge (ALJ) in the pending complaint proceeding so that the agency can issue an order granting the complainants rate relief prior to Feb. 1, 2008 -- the date that Southwest Gas's proposed rate hike would take effect if it is suspended for a maximum period.

Southwest Gas Storage's position is that "the instant rate increase (assuming a Feb. 1, 2008 effective date) will render the...ongoing Section 5 investigation moot. This belief, however, is rooted in the company's assumption that no action by the Commission establishing lower rates in that [complaint] case will occur prior to Feb. 1, 2008," the Missouri PSC said.

The Missouri PSC explained how FERC approval of Southwest Gas's Section 4 rate hike could moot the complaint. It noted that in order to determine the refund floor in the instant Section 4 case, FERC would have to look to the rate that is in effect immediately prior to Feb. 1, 2008. If no rate relief order is issued by FERC in the Section 5 investigation prior to that date, Southwest Gas Storage's existing rates, which the Commission has already found to be "substantially over-recovering" costs, would become the floor for refunds in the Section 4 case and the ongoing Section 5 complaint would have no relevance for establishing rates on a prospective basis or for establishing a refund floor applicable to any refunds ordered in the case.

To avert this, the Panhandle complainants asked FERC to grant them interim rate relief ideally by Aug. 31 and not later than prior to the effective date of Southwest Gas Storage's new proposed rates.

In December 2006, FERC set for evidentiary hearing and instituted a Section 5 investigation of Southwest Gas Storage's rates for jurisdictional storage services, which complainants allege are unjust and unreasonable (see NGI, Dec. 25, 2006).

The "Panhandle complainants" in a late October 2006 complaint said unreasonable rates have allowed Southwest Gas to over-recover its costs by nearly 60% (see NGI, Nov. 20, 2006). FERC's December order required Southwest Gas to file a cost-and-revenue study.

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 filed by Southwest Gas did not support the company's current rates, it would order an immediate rate reduction down to a level that is justified by the study. And the evidentiary hearing before an ALJ would consider whether a further rate reduction would be justified.

Southwest Gas said its cost-and-revenue study, which was filed in February, "more than supports the existing rates" of the company. As a result, "no immediate rate reduction is appropriate or can be ordered," it noted. The study revealed that Southwest Gas had a cost of service of $63.95 million for the 12-month period that ended Nov. 30, 2006, as adjusted. The Panhandle complainants have asked FERC to reject the cost-and-revenue study.

Southwest Gas 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 is the sole firm customer of Southwest Gas, holding a firm contract for 61 Bcf of storage capacity (essentially the entire capacity of Southwest Gas Storage).

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 America and the Process Gas Consumers Group.

©Copyright 2007 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.