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Power & Pipes

FERC, CFTC, and State Energy Law Developments

On February 19 and 21, the Federal Energy Regulatory Commission (FERC) issued several more determinations concerning whether jurisdictional natural gas service providers’ cost-of-service rates are just and reasonable given the recent reduction to the federal corporate income tax rate under the Tax Cuts and Jobs Act (TCJA). The recently released determinations ended approximately 21 separate “one-time report” proceedings without further action[1] and initiated a Natural Gas Act Section 5 rate investigation into Southwest Gas Storage Company’s rates (RP19-257).[2] FERC required the entities to file FERC Form No. 501-G, referred to as a “one-time report,” in light of the reduction from 35% to 21% of the federal corporate income tax rate. Morgan Lewis has developed several publications describing the “one-time report” proceedings, the most recent of which included a status update on the more than 100 proceedings that were initiated based on those submissions.

FERC’s review of Southwest Gas Storage’s one-time report found that its proposed return on equity, calculated at 19.5% after adjustments for the TCJA reduction, as well as other data submitted, warranted further scrutiny by the Commission. Southwest Gas Storage opted to leave its rates unchanged primarily because all of its firm natural gas storage agreements are at negotiated rates with its affiliate, Panhandle Eastern Pipe Line Company, LP. FERC, however, was unconvinced that a reduction of Southwest Gas Storage’s rates was not warranted, given that Southwest Gas Storage’s recourse rates for firm storage services were the same as provided for in its negotiated rate agreement with Panhandle, because its negotiated rate agreement with Panhandle was implemented less than two months before Southwest Gas Storage’s deadline to submit its one-time report, and because the Commission scrutinizes contracts among affiliates more closely, amid other reasons.[3]

Due to its concern that Southwest Gas Storage is potentially over-recovering revenues, FERC initiated a Section 5 rate investigation requiring Southwest Gas Storage to comply with all the attendant procedures under Section 5 of the Natural Gas Act, including submitting a cost and revenue study within 75 days. FERC’s decision to initiate an investigation here, despite terminating numerous others, indicates that industry participants should continue to keep a close eye on developments and determine whether their interests may be affected by FERC’s ongoing review in this area.

[1] Order Terminating FERC Form No. 501-G Proceedings, 166 FERC ¶ 61,118 (Feb. 19, 2019); Young Gas Storage Co., Ltd., 166 FERC ¶ 61,133 (Feb. 21, 2019).

[2] Southwest Gas Storage Co., 166 FERC ¶ 61,117 (Feb. 19, 2019).

[3] Id.