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Proposed FERC Policy Would Allow Cost Recovery For Pipeline Infrastructure Modernization

FERC is seeking public comment on a proposed policy statement that would allow interstate natural gas pipelines to recover through surcharge or tracker mechanisms certain capital expenditures made to modernize pipeline system infrastructure to enhance reliability, safety and regulatory compliance.

"The draft order issues for comment a proposed policy statement on the analytical framework the Commission will use to evaluate a cost recovery mechanism for natural gas pipeline companies that replace old and inefficient compressors, leak-prone pipelines, and perform other infrastructure improvements and upgrades to enhance the safe and reliable operation of their pipeline systems," according to Federal Energy Regulatory Commission staff.

The policy statement is based on principles outlined in a January 2013 order in which FERC allowed Columbia Gas Transmission to implement such a tracker (see Daily GPIJan. 31). Companies seeking modernization cost-recovery surcharges or trackers would be required to meet five standards:

  • Base rates must have been recently reviewed through a Natural Gas Act general Section 4 rate proceeding or through a collaborative effort between the pipeline and its customers;
  • Eligible costs must be limited to one-time capital costs incurred to meet safety or environmental regulations, and the pipeline must specifically identify each capital investment to be recovered by the surcharge;
  • Captive customers must be protected from cost shifts if the pipeline loses shippers or increases discounts to retain business;
  • Periodic reviews must be conducted to ensure rates remain just and reasonable; and
  • Pipelines must work collaboratively with shippers to seek support for surcharge proposals.

The proposed policy statement also seeks comments on several questions, including whether pipelines should be allowed to use accelerated amortization methodologies to recover costs of facilities installed pursuant to a modernization cost recovery mechanism. And the proposed policy statement seeks comments on whether it should make adjustments to the current reservation charge crediting policy.

Comments on the proposed policy statement are due 30 days from the date of publication in the Federal Register, with reply comments due 20 days later.

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