FERC dealt KN Interstate Gas Transmission a serious blow lastweek in ordering the pipeline to explain a 41% overrun in the costof its Pony Express Pipeline Project and prove the project stillmeets the Commission’s test for rolled-in rate treatment.

The Commission previously had awarded KNI a rolled-inpresumption based on facility costs of $159.2. But the pipelinecompany, as part of its general rate case filing, reported thatconversion and construction costs had climbed to $224.8 million, up$65 million. This is a “significant change,” the FERC order said,adding that KNI has failed to show that these new costs could meetthe 5% threshold test for rolled-in rates [RP98-117]. It furtherput KNI at risk for any under-recoveries associated with thepipeline project, which experienced several delays last fallbecause of the presence of liquids in the line. The pipeline is aconverted oil line that delivers Rocky Mountain gas production tomarkets in the Midcontinent and the Midwest.

Responding to a protest from Midwest Energy, the Commission alsodenied KNI’s request for confidential treatment of several ratesheets and contracts. Midwest argued KNI’s refusal to serve itscustomers with the information is “an attempt to hide the realcosts of requiring existing captive customers to subsidize KNI’sexpansions into new market areas on the east end of its system.”

FERC set these issues, along with a number of others in KNI’srate filing, for hearing. And while accepting KNI’s $30 millionrate increase conditioned on the outcome of the hearing, theCommission suspended the increase for the maximum five-month period(effective Aug. 1).

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