A dispute over fees for a pipeline complicates a gas rate hike.
Years-long battle over fees complicates Southwest Gas’ planned rate increase
As Southwest Gas Corp. prepares to increase rates this summer, the company remains locked in a years-long legal battle with a large business customer suing to recover millions in special fees it claims were intended for a pipeline that never was built.
Ethanol producer Pinal Energy asserts it has paid approximately $8 million to Southwest Gas to build a pipeline to serve its plant in the city of Maricopa. But Southwest has been able to serve the facility with existing infrastructure, and Pinal Energy filed suit in Superior Court in 2012 to get its money back.
According to the court documents, Pinal Energy in 2005 commissioned a study to build its own pipeline to connect to a nearby El Paso Natural Gas line, for a fuel supply to boil and dry the grains used to make ethanol.
But Southwest Gas informed Pinal Energy the company qualified for a special rate that would allow the ethanol plant to avoid building its own pipeline and instead rely on Southwest to transport gas from the El Paso line, according to the lawsuit.
Pinal Energy would pay a special fee to be served by an existing pipeline intended to serve thousands of planned homes. Once the homes were built and additional capacity was needed to serve the homes and ethanol plant, Southwest Gas would build an additional pipeline, according to the lawsuit.
Pinal Energy asserts the special fees are intended to finance the new pipeline, while Southwest Gas contends they are simply a part of the cost of transporting gas to the plant.
Pinal Energy has been paying the fees, but the homes were never built and the new line was never needed, the ethanol plant officials said.
Pinal Energy opened in August 2007 and each year buys about $8 million in transport services from Southwest Gas and pays about $80,000 a month in spe-
“Pinal Energy’s complaint is nothing more than an attempt to improperly recover and reduce negotiated natural gas transportation costs as a means of improving its financial position and margin.” SOUTHWEST GAS, IN DOCUMENTS FILED WITH STATE UTILITY REGULATORS
cial fees. That’s been about $4.3 million in fees as of the lawsuit, and another $3.7 million since then that is in a special escrow account pending the resolution of the dispute, according to the company.
The ‘true up’ clause
The contract calls for a “true up” regarding what the company pays in fees over the years and the actual cost of the new pipeline, once it is built.
Pinal Energy says that because the line was never built, the cost is zero dollars, and the true-up clause means all $8 million paid in pipeline fees should be returned. It’s also suing for legal costs.
“Because Southwest Gas’ actions have been undertaken with evil intent and with a gross and reckless indifference to Pinal Energy’s rights, Pinal Energy is entitled to punitive damages from Southwest Gas,” the company said in court documents.
Southwest Gas has said in court documents that because the pipeline hasn’t been built, the true up can’t be calculated.
Southwest Gas officials declined to comment on the litigation and have filed a counterclaim for legal expenses.
“Pinal Energy’s complaint is nothing more than an attempt to improperly recover and reduce negotiated natural gas transportation costs as a means of improving its financial position and margin,” Southwest Gas said in documents filed with state utility regulators.
The utility regulators, however, can’t settle the debate because it is a private contract.
In a court response last year, Southwest Gas confirmed it has not built the “permanent route” pipeline because it is not necessary.
In June 2013, Pinal Energy stopped making full payments, the gas company said. Southwest Gas kept up service, but Pinal Energy put money in an escrow account to be paid at the conclusion of the dispute.
Then Southwest Gas in June 2014 decided to build the permanent route because demand increased, according to court documents.
But Pinal Energy officials say the route still isn’t needed.
“Southwest Gas only expressed their intent to build the pipeline in 2014, after all their legal arguments regarding how they had no obligation to build it were exhausted,” Pinal Energy co-owner Tod Dickey said. “In our opinion it was a legal ploy to lessen their liability in the lawsuit.”
Proposed rate increase
Now Southwest Gas is asking to raise rates on customers across the state, and Pinal Energy officials questioned the need considering the fees it has paid that have not been used as intended.
A proposed settlement in the Southwest Gas rate case would increase the gas company’s annual revenue by $16 million, about half the amount sought in the original rate filing. It would raise the average residential bill about 40 cents a month to $37.
Pinal Energy applied to be an intervenor in the case, and Southwest Gas opposed that motion. Administrative Law Judge Dwight Nodes allowed Pinal to intervene.
In its filings at the Arizona Corporation Commission, Pinal Energy officials questioned whether the fees paid by the company were properly recorded by Southwest Gas.
Southwest Gas provided a statement noting that all company revenue has been reviewed by the Corporation Commission and the Residential Utility Consumer Office.
A pretrial conference in the lawsuit was recently delayed. The rate case is scheduled to be heard in April.