An executive with Conoco Inc. last week accused interstatepipelines of intentionally burying information that customers needto determine whether pipes are exceeding their authorized rates ofreturn (RORs), which he strongly suspects is the case.

The “information that shippers and producers and end-users needto understand the pipeline’s return [goes] underground” when it’sbeing sought, said J. Mike Stice, manager of gas marketing, naturalgas and gas products for Conoco at the 11th annual LDC Forum inChicago, IL. “We can’t get to the data, we can’t get to theinformation,” he noted, adding that “even simple things likecapacity and throughput of major pipelines” were hard to come by.

Although the average authorized ROR for pipelines is 12%, thecomposite average ROR for 28 major pipelines has been 15.1%, withthree pipelines RORs exceeding 20%, Stice said. This compares to a6% ROR on investments for the exploration and production sector “asa whole,” he told about 500 gas purchasers and pipeline executivesat the Forum, sponsored by Interchange Energy Group. Stice contendsthe “excess profits” being enjoyed by pipes as a result of thehigher RORs have been “exasperating the conditions at thewellhead,” driving producers to their incremental costs to produceand causing the cancellation of long-lead time exploration efforts.

If pipeline RORs are so good, maybe Conoco should considerbuying itself a pipeline, suggested one Forum attendee. adding thatColumbia Energy was “up for sale” now. “…I don’t think any of theproducers envisioned that this would be a 15-20% return businesswhen they exited the pipeline business,” Stice countered. “So youcan imagine it does have producing chairmen looking at pipelines.”

That “15% [ROR] number has been thrown around a lot,” said CarlW. Levander, manager of regulatory analysis for Columbia GasTransmission and Columbia Gulf Transmission. “I would simply notpick numbers out” of the Form 2s, which pipes are required to fileat FERC, and equate them to a pipeline’s ROR, he noted, adding thatthis was an “iffy prospect.”

“This is a cost-based, regulated business. We would like to knowwhat the numbers are. And if the Form 2s don’t provide the datathat allow us to understand it, then what does? We need to knowthat information,” Stice said.

Information on pipeline operations has become especially scarcenow that pipes generally aren’t required to file Section 4 ratecases under the Natural Gas Act, he noted. This “has resulted intransportation rates that are considerably higher than needed forpipelines to recover their costs, to realize commensurate returnson their investments and to attract needed capital for expansions.”Customers “have little information to test the just and reasonableclaims of pipelines without engaging in a very complicated andcostly process,” Stice said.

He called on FERC to establish procedures for the “periodicfreshening” of pipeline rates to avoid overrecovery on RORs. Hefurther said existing pipeline rates need to be “brought in linewith the current factors and data that form the basis for theCommission’s cost-based pipeline rate calculation.” Stice alsochampioned an incentive mechanism to promote cost efficiency onpipelines. Lastly, the process “should be as simple and efficientas possible to reduce the total resources devoted throughout theindustry to pipeline ratemaking.”

Susan Parker

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