In what was a blow to "Panhandle complainants" and Midwest regulators, FERC has accepted and suspended for five months Southwest Gas Storage's proposed rate increase to become effective Feb. 1, 2008, subject to refund and the outcome of a hearing, and denied the complainants' renewed request for interim rate relief and expedited action on a complaint in which customers have accused the storage provider of charging excessive rates.

The agency also rejected Missouri regulators' plea to waive an initial decision by an administrative law judge (ALJ) in the complaint case, which would have allowed the Federal Energy Regulatory Commission (FERC) to issue a final order prior to acting on Southwest Gas Storage's Section 4 rate proposal.

But there was a partial victory for complainants and state regulators. FERC voted to consolidate Southwest Gas's Section 4 rate case and the contentious Section 5 complaint case.

Southwest Gas in early August filed a Section 4 proposal seeking to increase its existing rates by $4.7 million for storage services [RP07-541]. Complainants argued that the rate proposal by Southwest Gas was designed to head off a FERC ALJ hearing into the complaint case, which was scheduled to begin in late August but was postponed [RP07-34]. The complainants include shippers on Southwest Gas affiliate Panhandle Eastern Pipe Line, industry associations and customer advocacy groups.

"Protesters raised numerous concerns with Southwest Gas's Section 4 rate filing...The Commission shares the concerns that the protesters raised. Based upon a review of the filing, we find that Southwest Gas has not shown its proposed rates to be just and reasonable, and the proposed rates may be unjust, unreasonable, unduly discriminatory or otherwise unlawful," the FERC order said.

"We find that Southwest Gas's proposed rate modification raises issues that require further investigation at a hearing before an administrative law judge. Therefore, we will set all issues in the subject filing for hearing."

However, FERC said the opponents did not make a sufficient case to reject Southwest Gas's proposed rate increase. "The Commission understands that there are disagreements between certain parties as to what rates Southwest Gas should be comparing its proposed cost of service, rate base and throughput...The disagreement over this issue, however, does not provide an adequate basis for summarily rejecting Southwest Gas's rate application," the order noted.

"In the alternative to rejection, the complainants and [Kansas regulators] request that the Commission consolidate Southwest Gas's Section 4 rate application with its ongoing Section 5 complaint proceeding. We agree with this recommendation," the order said. "Consolidating the two proceedings will reduce the administrative burden for Commission staff and parties...Consolidation will also provide the most efficient and effective forum to handle issues common to both proceedings."

In denying complainants' plea for interim rate relief, the order said "staff's initial review finds that Southwest Gas's Section 4 rate application supports its currently effective rates if the Commission approves Southwest Gas's [proposed] purchase of base gas and off-system capacity" that is pending in an unrelated certificate application [CP07-69]. "However, should the Commission deny Southwest Gas its costs of purchasing base gas and off-system capacity in the certificate proceeding, we will revisit the issue of interim rate relief," the order noted.

Commissioner Jon Wellinghoff dissented on this issue, saying that he believed complainants should be granted interim rate relief. He noted that Southwest Gas's inclusion of costs associated with its pending certificate application in its proposed rate hike ran counter to FERC regulations.

"We deny [the Missouri Public Service Commission's] request to waive the initial decision in the Section 5 complaint proceeding. Considering the complexity of the issues being tried by the administrative law judge, MoPSC has provided no compelling reason or justification for omission of the initial decision in this case," the FERC order noted.

"The parties have jointly submitted to the presiding judge a 28-page listing of issues...This listing alone shows that there are substantial issues of fact in which the parties have substantial disagreement. These issues are best resolved in a trial-type setting. Merely setting a lower refund 'floor' [as requested by MoPSC] is not a sufficient reason for waiver of the initial decision in a case as complicated and contentious as this. Southwest Gas's current rates will be the subject of the consolidated Section 4 and Section 5 investigation, and it is those rates which will ultimately be subject to adjustment, if any."

"Moreover, it is our policy that waiver of the initial decision will typically not be granted unless there is agreement for such waiver by all parties to the proceeding, which is not the case here."

The case involving Southwest Gas has become contentious and complex. The "Panhandle complainants" filed their complaint in late October 2006, alleging that Southwest Gas's unreasonable rates had allowed the company to overrecover its costs by nearly 60% (see NGI, Nov. 20, 2006).

In December 2006, FERC set for evidentiary hearing and instituted a Section 5 investigation of Southwest Gas Storage's rates for jurisdictional storage services (see NGI, Dec. 25, 2006). The order also 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 was justified by the study.

Southwest Gas's cost-and-revenue study, which was filed in February, revealed that the company 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.

The complainants, state regulators and others now contend that Southwest Gas proposed its Section 4 rate hike in August to do an end-run around the pending complaint proceeding (see NGI, Aug. 20).

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.

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