A FERC administrative law judge (ALJ) initial decision issued last week has found that the fuel tracking provisions for Rockies Express Pipeline LLC (REX) are not just and reasonable, recommended refunds to shippers of $22.2 million, and endorsed an alternative to the existing tracker, which was found to be overly complex and almost impossible to monitor.

ALJ Judith A. Dowd sided with the Indicated Shippers (BP America Production Co., BP Energy Co., and WPX Energy Marketing) and Ultra Petroleum in finding that the Kinder Morgan west-to-east long line profited from its tracking surcharge mechanism for fuel and lost and unaccounted for gas (FL&U). “Fuel reimbursement provisions, including cash-outs for over-collections of fuel, should not be a profit center for the pipeline,” the judge’s decision said. “…the cash-out of a pipeline’s fuel, over-recoveries may not be used to increase a pipeline’s return.”

“REX has failed to credit shippers the full value of the monetized gas retained in excess of that needed for its FL&U costs,” according to the decision, which must be reviewed by the Federal Energy Regulatory Commission members.

REX defended its action in retaining profits from the sale of “excess gas” tendered by shippers in payment for FL&U costs, where the sale of that gas exceeded the costs. The pipeline maintained the process was prescribed by its “Commission-approved tariff” as operational sales. The judge said the retained profits did not qualify as operational sales.

In the absence of a full accounting by the pipeline, Dowd accepted an estimate of the excess retained and subject to refund during 2011 and 2012 of approximately $22.2 million, submitted by an independent witness.

The tracker itself “is unjust and unreasonable because it is non-transparent, its electric power costs have no relationship to gas prices, and most importantly, the fuel tracker over-recovers fuel costs from shippers,” the decision said. Part of the tracker’s complexity has to do with the fact that it covers both gas-fired and electric-powered compressor fuel costs with different and complex formulas. The judge accepted the alternative tracker proposed by FERC staff and the shippers “because it recovers electric and gas costs separately and in-kind.”

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