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NGSA Opposes FERC Pipeline Modernization Surcharge

Interstate natural gas pipelines should not be permitted by FERC to track and recover the capital costs of pipeline modernization through a surcharge mechanism proposed by the agency, the Natural Gas Supply Association (NGSA) said in comments filed Monday.

"Certainly, pipelines should have the opportunity to recover costs for actions taken to comply with environmental and safety requirements," said NGSA CEO Dena Wiggins. "However, using a surcharge mechanism for recovery of these capital costs undermines the existing methodical and careful Section 4 rate case process that currently provides strong protections for pipeline shippers."

The Federal Energy Regulatory Commission's (FERC) proposal to track costs related to pipeline modernization "and recover them on a guaranteed basis in a surcharge is questionable policy and is not based on a record demonstrating the need for such a major change in rate regulation," NGSA said in comments (PL15-1).

The proposed policy statement "would represent a fundamental policy reversal in natural gas pipeline rate regulation that is inconsistent with over sixty years of rate regulation under the NGA [Natural Gas Act]...There are sufficient and balanced rate case and settlement procedures in place today to permit pipelines the opportunity to recover modernization costs. Compliance with environmental and safety laws is mandatory for regulated entities, and the need for additional cost-recovery guarantees to 'incentivize' such compliance is misplaced."

NGSA said it supports conditions FERC is considering to protect consumers, but "such conditions, no matter how carefully crafted and enforced, are no substitute for a full-fledged Section 4 rate case, subject to an evidentiary hearing, with an opportunity for discovery, cross-examination, and decision before and impartial fact-finder."

In separate comments, Southern Companies said it is generally supportive of FERC's proposal, but said the processes in the policy statement "would benefit from clarification as to the scope of the activities eligible for recovery under the contemplated cost recovery mechanism." In addition, Southern proposed procedural safeguards for shippers, including some components of a January 2013 order which allowed Columbia Gas Transmission to implement a tracker mechanism.

FERC began seeking public comment two months ago on the proposed policy statement, which 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 (see Daily GPINov. 20, 2014). The policy statement is based on principles outlined in the January 2013 order (see Daily GPI, Jan. 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 sought 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 sought comments on whether it should make adjustments to the current reservation charge crediting policy.

Monday was the deadline for filing initial comments. In response to requests from the American Gas Association, American Public Gas Association, Interstate Natural Gas Association of American, NGSA and the Process Gas Consumers Group, FERC has extended the deadline for submitting reply comments to Feb. 26.

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