Panhandle Eastern Pipe Line shippers, industry associations and customer advocate groups have accused Panhandle affiliate Southwest Gas Storage of charging “unjust and unreasonable” rates for jurisdictional storage services, and have called on FERC to act quickly to provide some rate relief.
In a Section 5 complaint filed recently, the parties — who call themselves the Panhandle complainants — asked the Federal Energy Regulatory Commission to initiate an investigation into the rates, terms and conditions of service of Southwest Gas Storage, set the case for a full and prompt evidentiary hearing, and provide immediate interim rate relief to help offset the effect’s of Southwest’s alleged cost over-recovery [RP07-84].
A study commissioned by the Panhandle complainants supports an immediate reduction in revenues of approximately $16.9 million, which is about 37% of Southwest Gas Storage’s current reported annual revenues, they 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 is currently the sole firm customer of Southwest Gas, holding a firm contract for approximately 61 Bcf of storage capacity (essentially the entire capacity of Southwest Gas), and currently pays Southwest Gas approximately $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, the Independent Petroleum Association of American and the Process Gas Consumers Group.
They said a probe of Southwest Gas Storage’s rates is long overdue. “Like the cicada, Southwest Gas has been ‘underground,’ absent from any general rate investigation before the Commission for some 17 years.” The complainants called for FERC’s actions in this case to mirror those taken in February 1989, where the agency “successfully brought about a reduction in the tariff rates of Southwest Gas in two phases.”
In the first phase, they recalled that “an immediate reduction of approximately 35% was made effective on June 1, 1989, 96 days from the date of the Commission’s initial order. These reductions, equating to approximately $7.3 million in annual cost of service, were made on the basis of any updated cost and revenue study that the Commission directed Southwest Gas to submit 45 days from the date of the commencement of the investigation. The study reflected costs over an annual period ending Nov. 30, 1988.”
Secondly, “a hearing was then convened in that same proceeding in order to conduct a more detailed analysis of the company’s costs and to evaluate the need for further reduction in rates,” they said. A settlement agreement was filed in June 1989, which reflected approximately $2.4 million in further rate reductions, according to the complaint.
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