Michigan and Kansas regulators Thursday joined Missouri regulators in protesting 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 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 the Federal Energy Regulatory Commission (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. The KCC urged FERC to reject the proposed rate increase. In the alternative, it 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.

Like the Missouri Public Service Commission earlier this week, the Michigan Public Service Commission (PSC) 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.

“While the [Michigan PSC] believes that the relief sought by the Missouri Commission in the form of a waiver of the initial decision is the optimum approach under the circumstances, in the alternative, granting the interim relief sought by the Panhandle complainants would be a reasonable way of mitigating the harm imposed on customers of Southwest Gas,” said the Michigan PSC.

On Monday, the self-styled “Panhandle complainants” renewed their call for FERC to grant them interim rate relief and to take expedited action in the complaint case accusing Southwest Gas of overcharging its customers. The complainants include shippers on Southwest Gas affiliate Panhandle Eastern Pipe Line, industry associations and customer advocacy groups. The Missouri PSC urged the agency to take swift action as well.

These latest requests 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 Missouri PSC explained how FERC approval of Southwest Gas’s Section 4 rate hike could moot the complaint. 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.

Complainants and the Missouri regulators separately asked FERC to act on the request for interim rate relief before Southwest Gas Storage’s proposed rate hike goes into effect on Feb. 1, 2008. Specifically, the Panhandle complainants called on FERC to grant 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 Daily GPI, Dec. 22, 2006).

The “Panhandle complainants” in a late October 2006 complaint said unreasonable rates have allowed Southwest Gas to overrecover its costs by nearly 60% (see Daily GPI, Nov. 16, 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.

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