A group of municipal gas utilities has called on Congress to pass legislation to reform Section 5 of the Natural Gas Act (NGA) so that shippers can receive retroactive refunds for over-collections of rates by interstate natural gas pipelines. The request was accompanied by a recent study estimating that pipelines over-recovered more than $4 billion from their customers over a five-year period.

Under current law, refunds only become available on the date the Federal Energy Regulatory Commission (FERC) decides a complaint brought by a gas pipeline shipper, assuming FERC rules in a shipper’s favor, rather than from the date a complaint is filed, as is the case with refunds owed to electric customers.

“Since under NGA Section 5 the FERC may only rule that a rate reduction take effect prospectively after FERC’s order [on complaint] is issued, the pipelines have an obvious and strong incentive to delay the proceeding interminably (since no refunds can be ordered under NGA Section 5 during the interim even if the pipelines are later determined to have overcharged their customers),” wrote Bert Kalisch, president of the American Public Gas Association (APGA), in a letter to Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee, and other members of the panel last Wednesday.

Just as Congress fixed the Federal Power Act in 1988 to provide for retroactive refunds for electric customers (from the date a complaint is filed), “Congress should now provide FERC with that same refund authority under NGA Section 5,” he said. “All sitting FERC commissioners, without regard to party affiliation, have decried this absence of [retroactive] refund authority under NGA Section 5.”

The Interstate Natural Gas Association of America (INGAA), which represents interstate pipelines, said there was no justification to change the framework of Section 5 of the NGA. “Under Section 5, FERC can initiate an investigation if it believes a pipeline may be over-earning. FERC has used this authority consistently in recent years, and customers also have the statutory right to petition the Commission to initiate an investigation,” INGAA said.

The APGA asked the committee to review a recent study of 32 pipelines by the Natural Gas Supply Association that found that these pipes recovered over a five-year period (2006-2010) roughly $4.2 billion more than they would have collected with an average 12% allowed return on equity (ROE). According to the study, pipelines with the highest ROEs were Natural Gas Pipeline Company of America LLC (39.5%); Kinder Morgan Interstate Gas Transmission LLC (28.6%); Kern River Gas Transmission (23.4%); Dominion Transmission (23.1%); and Great Lakes Gas Transmission (22.2%).

“This very significant over-recovery is not the exception to the rule; it continues to be the reality with which customers of interstate pipelines have struggled for years,” Kalisch said. The margin of over-recovery by interstate pipelines has increased from $3.7 billion in the NGSA’s 2009 report to the most recent estimate of $4.2 billion, the APGA said.

In 2009 FERC launched formal Section 5 investigations of NGPL, Great Lakes and Northern Natural Gas Co. for significantly over-recovering their cost of service (see NGI, Nov. 23, 2009). The claims against the three pipelines were settled in 2010 (see NGI, May 17, 2010, June 7, 2010).

FERC staff’s preliminary investigation of financial information submitted by the pipelines for 2008 indicated that NGPL may have achieved a ROE of 24.5% based on an over-recovery of $149 million, while Great Lakes’ estimated ROE was 20.83% with an over-recovery of $56 million (RP10-149). Northern Natural had an estimated ROE of 24.36% with an over-recovery of $167 million.

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.