FERC commissioners voted Thursday to initiate Natural Gas Act Section 5 investigations of the rates charged by four interstate natural gas pipelines to determine if they are "substantially over-recovering their costs, resulting in unjust and unreasonable rates."
By a 4-0 vote, the Federal Energy Regulatory Commission said it would investigate the rates of Tuscarora Gas Transmission Co. [RP16-299], Empire Pipeline [RP16-300], Iroquois Gas Transmission System [RP16-301] and Columbia Gulf Transmission [RP16-302]. FERC directed each pipeline to file a cost and revenue study within 75 days and set each case for evidentiary hearings before a FERC administrative law judge.
The investigations follow reviews by FERC staff of cost and revenue information provided by the companies in their filings of Form No. 2, the Annual Report for Major Natural Gas Companies, and Form No. 2-A, Annual Report for Non-Major Natural Gas Companies, for 2013 and 2014. Using that data, staff calculated a cost of service for each pipeline and determined what each pipeline's revenues were for those years.
The analysis indicated that Columbia Gulf had a calculated return on equity (ROE) of 17.3% in 2013 and 18.2% in 2014; Iroquois had ROE of 16.2% in 2013 and 16.3% in 2014; Empire had ROE of 15.8% in 2013 and 20.2% in 2014; and Tuscarora had ROE of 23.6% in 2013 and 24.9% in 2014.
"These estimated levels of returns lead staff to believe that these four pipelines are over-recovering their costs of service and may be charging rates that are no longer just and reasonable," said James Sarikas of FERC's Office of Energy Market Regulation. "In addition, none of these pipelines have an existing settlement with its customers that places a currently effective moratorium on existing rates, or requires it to file a new general section 4 rate case in the future."
The Natural Gas Supply Association (NGSA) said it was "gratified" that FERC had initiated the Section 5 investigations, and called for Section 5 reform.
"Legislation that reforms Section 5, granting FERC the authority to award refunds to shippers in cases where pipelines are determined to have overcharged, would further enhance consumer protections since currently FERC can only order an overearning pipeline to lower its rates going forward from the date of the Commission's order," said NGSA CEO Dena E. Wiggins. "Now that FERC has adopted a new modernization surcharge policy that grants interstate pipelines new opportunities to recover costs outside of a general rate case [see Daily GPI,April 16, 2015;Jan. 26, 2015], Section 5 reform is more important than ever."
Since 2009, FERC has initiated 10 Section 5 proceedings to determine if pipeline revenues significantly exceed their annual cost of service, Sarikas said. Eight of the proceedings ended with settlement agreements and two proceedings were terminated. A major settlement over over-recoveries was reached with Natural Gas Pipeline Co. of America (see Daily GPI, July 7, 2010)
Since settling a Section 5 case with Wyoming Interstate Co. pipeline in 2013, the Commission has been mum on such investigations (see Daily GPI,Oct. 3, 2013).
"For the last probably year or two I've had a number of stakeholders who have come through my office and who have asked from time to time, 'Has the Commission quit doing Section 5 rate cases?' because we'd had a period where were a number of them, and I think it's probably been a year or two since we've initiated some of these rate cases," said Commissioner Tony Clark. "I'd always tell them, 'no, there hasn't been a policy change.' Each year, staff does review these rates and, for various reasons, there may be a year or two where staff chooses not to pursue it...but that we were actively engaged in this particular line of work.
"Of course, we don't prejudge any of these cases that are being teed up under Section 5. I look forward to the record being developed and potentially something eventually coming to the Commission."