The "Panhandle complainants" have called on FERC to reject a cost-and-revenue study submitted by Southwest Gas Storage and to provide interim rate relief for storage customers, saying that the study does not represent a true picture of the company's cost-of-service because it includes costs related to a project at its North Hopeton storage field in Oklahoma. The project, which was filed after FERC ordered the cost-and-revenue study, skews the cost data, the complainants said.

In late December, the Federal Energy Regulatory Commission 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 a November complaint said that unreasonable rates have allowed Southwest Gas to over-recover its costs by nearly 60% [RP07-34]. 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 in December, 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 administrative law judge would consider whether a further rate reduction would be justified.

Southwest Gas said its cost-and-revenue study, which it filed on Feb. 20, "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 "vast majority" of the adjustments in the study were based on the company's certificate application for the North Hopeton storage field, which was filed at the Commission in late January (after FERC ordered the study), the Panhandle complainants said. A preliminary analysis of the cost-and-revenue study "reveals that Southwest Gas Storage is still over-recovering by at least 48%, or $15 million, above and beyond what would be considered just and reasonable," they contend.

The complainants called on the Commission to institute interim rate relief by approving an immediate $14.95 million reduction in revenues for Southwest Gas.

They noted that FERC's December order required Southwest Gas to include in the study actual data for the latest 12-month period that ended the date of the order (Dec. 21, 2006). However, Southwest Gas included costs related to the North Hopeton storage field application, which "[was] filed over a month after the Commission's order and nearly two months after the end of the 12-month period to be used to evaluate actual data," the complainants said.

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 currently 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), and pays Southwest $45 million for those services.

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 storage 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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