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FERC Nominee Neutral on Refund Authority for Gas Pipe Customers

FERC nominee John Norris last Thursday skirted questions about whether natural gas shippers should be eligible for retroactive refunds when they have been overcharged by pipelines.

For electricity customers, the refund authority under the Federal Power Act (FPA) "[has] been effective and worked well. There's been certainly a deterrent effect" as a result, but "I'm not going to advocate one way or another to [put] the change into law" for natural gas pipeline customers, Norris, a former Iowa regulator, said during his Senate confirmation hearing for a seat on the Federal Energy Regulatory Commission.

"If given that authority [for gas customers], FERC would use it effectively to make sure consumers are treated fairly and it could be a deterrent effect," he told the Senate Energy and Natural Resources Committee. Norris, former chairman of the Iowa Utilities Board and current chief of staff for Agriculture Secretary Tom Vilsack, has been nominated to finish out the remainder of the term vacated by former FERC Chairman Joseph Kelliher (see NGI, June 15). The term will expire on June 30, 2012.

Sen. Maria Cantwell (D-WA) sought to include in the broad energy bill, which was voted out of the Senate energy panel in late June, a proposal to make gas pipeline customers eligible for retroactive refunds, but it was defeated in committee. She indicated that she plans to reoffer her amendment when the Senate takes up the energy bill in the fall (see NGI, June 22).

Cantwell, a committee member, estimated natural gas pipelines overcharged consumers by $3.7 billion between 2003 and 2007. "So we're talking about significant problems here."

Under the current system, wholesale electric customers have been eligible for a rate refund from the date a Section 206 (FPA) complaint is filed at FERC. But the Natural Gas Act (NGA) only provides for prospective relief for gas pipeline consumers in Section 5 complaint cases -- after an agency decision is issued, which more often than not occurs years after a complaint is filed. Cantwell is seeking to set the effective date for gas refunds as early as when a complaint case is filed.

The U.S. Court of Appeals for the District of Columbia Circuit in March added fuel to the debate. The court ruled that the Commission overstepped its authority when it granted a retroactive rate increase to wholesale electricity generators that had been serving the California market during the 2001 western power crisis. The ruling, which questioned FERC's retroactive rate refund authority for electricity customers, was based on the plain language of the FPA. The NGA presently contains parallel language, barring the Commission from making rate adjustments retroactively.

Sen. Robert Menendez (D-NJ) questioned whether the agency was effectively using its refund authority for electricity customers. "Mr. Norris, you and I talked about regional transmission organizations...And my own view is they often do not adequately protect consumers. Now I'm aware [FERC] has found parties that have engaged in market manipulation at times and while the Commission has imposed penalties, I'm not aware that FERC has ordered refunds in any of those cases. It suggests to me that consumers failed to receive some of the much-needed relief when there were clearly unjust and unreasonable rates," he said.

"Do you believe as a general rule that consumer refunds should accompany any Commission finding of market manipulation?" Menendez asked.

"I think that [refund authority] can be used at appropriate times to deter inappropriate behavior," Norris responded.

Menendez raised the issue of FERC's penalty authority. "Sometimes penalties are just simply a cost of doing business [for some companies], unless penalties are large enough in which the excess profits, because of market manipulation, were eliminated by virtue of the penalty. Then the penalty is fine. It doesn't do much for the consumer, but maybe it acts as a deterrent."

Norris said he believes the Commission's penalty authority is an "effective deterrent," but he left open the issue of whether the agency needs additional penalty authority from Congress.

"I don't know if it's a question of more authority. It's what the Commission does with its authority," countered Menendez. "I'm just urging you to consider that when there is a determination of market manipulation, that...the Commission uses [its] authority -- both its penalty authority as well as its rebate authority [for] consumers as a very strong deterrent."

He also questioned Norris about how he envisioned FERC's role in the siting of transmission facilities. Norris said he would be "respectful of the rights of states on siting of infrastructure and give great deference to the states on this. There is a need to upgrade our transmission grid...I think, depending [on] the power Congress decides to give to FERC, we have to use it very sparingly and judiciously."

If the Commission is given the expanded backstop siting power "as envisioned under the legislation" that emerged from the Senate energy committee, "it would be almost in my view unlimited power. So what commissioners at FERC decide to do with that unlimited power will be very important," Menendez said. With backstop authority, FERC could step in and begin processing an application for a new transmission line if state regulators have failed to act within one year of the filing of the application.

"Right now, as mapped out, [his] entire state of New Jersey would be subject to transmission lines going through it" if the Commission is granted expanded backstop siting authority for new power lines, the senator noted.

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