Pipelines Conceal ROR Data, Producer Charges
An executive with Conoco Inc. last week accused interstate
pipelines of intentionally burying information that customers need
to determine whether pipes are exceeding their authorized rates of
return (RORs), which he strongly suspects is the case.
The "information that shippers and producers and end-users need
to understand the pipeline's return [goes] underground" when it's
being sought, said J. Mike Stice, manager of gas marketing, natural
gas and gas products for Conoco at the 11th annual LDC Forum in
Chicago, IL. "We can't get to the data, we can't get to the
information," he noted, adding that "even simple things like
capacity and throughput of major pipelines" were hard to come by.
Although the average authorized ROR for pipelines is 12%, the
composite average ROR for 28 major pipelines has been 15.1%, with
three pipelines RORs exceeding 20%, Stice said. This compares to a
6% ROR on investments for the exploration and production sector "as
a whole," he told about 500 gas purchasers and pipeline executives
at the Forum, sponsored by Interchange Energy Group. Stice contends
the "excess profits" being enjoyed by pipes as a result of the
higher RORs have been "exasperating the conditions at the
wellhead," driving producers to their incremental costs to produce
and causing the cancellation of long-lead time exploration efforts.
If pipeline RORs are so good, maybe Conoco should consider
buying itself a pipeline, suggested one Forum attendee. adding that
Columbia Energy was "up for sale" now. "...I don't think any of the
producers envisioned that this would be a 15-20% return business
when they exited the pipeline business," Stice countered. "So you
can imagine it does have producing chairmen looking at pipelines."
That "15% [ROR] number has been thrown around a lot," said Carl
W. Levander, manager of regulatory analysis for Columbia Gas
Transmission and Columbia Gulf Transmission. "I would simply not
pick numbers out" of the Form 2s, which pipes are required to file
at FERC, and equate them to a pipeline's ROR, he noted, adding that
this was an "iffy prospect."
"This is a cost-based, regulated business. We would like to know
what the numbers are. And if the Form 2s don't provide the data
that allow us to understand it, then what does? We need to know
that information," Stice said.
Information on pipeline operations has become especially scarce
now that pipes generally aren't required to file Section 4 rate
cases under the Natural Gas Act, he noted. This "has resulted in
transportation rates that are considerably higher than needed for
pipelines to recover their costs, to realize commensurate returns
on their investments and to attract needed capital for expansions."
Customers "have little information to test the just and reasonable
claims of pipelines without engaging in a very complicated and
costly process," Stice said.
He called on FERC to establish procedures for the "periodic
freshening" of pipeline rates to avoid overrecovery on RORs. He
further said existing pipeline rates need to be "brought in line
with the current factors and data that form the basis for the
Commission's cost-based pipeline rate calculation." Stice also
championed an incentive mechanism to promote cost efficiency on
pipelines. Lastly, the process "should be as simple and efficient
as possible to reduce the total resources devoted throughout the
industry to pipeline ratemaking."