Kern, Shippers Settle Rate Case Before it Begins
In a rare move that eliminates huge legal costs, Kern River Gas
Transmission has submitted to FERC a negotiated settlement
agreement on its rate design prior to the start of a general rate
case (RP99-274). The agreement has the approval of all of its
shippers. Kern's general rate case was scheduled to begin this
The settlement calls for a departure from straight-fixed
variable rate design, including the shifting of about 6 cents (out
of 67 cents) to the commodity portion of Kern's firm rates from the
demand portion. About $14.7 million, or 8.5% of its annual
settlement cost of service, is being reclassified to the commodity
portion of its rates. The change places more risk of cost recovery
on the pipeline company. In addition, Kern River has signed a
revenue-sharing agreement with its shippers that would reward both
shareholders and ratepayers equally if the pipeline brought in more
than $177.3 million in revenues annually. The figure is quite a bit
higher than revenues collected in prior years, but it takes into
account the likelihood Kern revenues will increase in the future.
"I'm not sure the last time you saw a rate case settled before
it ever got filed. That's what we've done here," said Steven Snarr,
vice president and general counsel for Kern River. "It's unique in
that all of our firm shippers are supporting it as well as many of
the interruptible and replacement shippers as we could round up and
get votes from," he said. "They seemed to coalesce around the shift
of some costs; it's not a significant amount, but some costs are
shifted to commodity away from SFV."
Shippers also apparently were lured into settling by the
systemwide firm rate discount of 2 cents/Mcf to 67 cents/Mcf that
Kern offered in January to all long-term firm and seasonal firm
customers who signed a letter of intent to support the agreement.
The discount will continue as Kern's new rates following FERC's
decision on the settlement.
"This is consistent with the efforts at FERC to place greater
emphasis on alternative dispute resolution procedures., and it
saved a lot of litigation costs and time during a period in which
higher rates potentially would have been in effect," said Katherine
Edwards, a Washington, D.C. attorney who represented several
shippers in the negotiations. "From everyone's perspective, I think
it was a very beneficial procedure."
According to the settlement, Kern River also must not file for a
rate increase for the three years following the effective date of
the settlement and must file a general rate case in five years. The
pipeline is requesting an effective date of May 1.
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