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FERC Launches Surgical Strike on Pipeline Rates

Pipeline customers who failed to get lower rates on Panhandle Eastern Pipe Lines' Southwest Gas Storage service by filing their own Natural Gas Act (NGA) Section 5 complaint [RP07-34] several years ago, nevertheless may have laid the groundwork and inspired the strategy for FERC's surprise action last week, calling for formal investigations of three pipelines for possible over-recovery in their rates (see related story).

The three Section 5 complaints against Natural Gas Pipeline Co. of America (NGPL), Northern Natural Gas and Great Lakes Gas Transmission were added to the docket of the Federal Energy Regulatory Commission's (FERC) regular meeting Thursday at the last minute and the order included an expedited schedule that requires the pipelines to file cost and revenue statements in 45 days.

In the previous case, first filed in 2006, customers had claimed that Southwest Gas had over-recovered its costs as much as 60%. But the case was ultimately settled without a rate reduction, Susan Ginsberg, regulatory affairs vice president for the Independent Petroleum Association of America (IPAA), said when Southwest Gas at the last minute filed a Section 4 case for higher rates after quickly filing for a certificate for new construction.

"Permitting a regulated utility to avoid potentially adverse results of litigation by kicking over the chessboard on the eve of trial to improve its odds is incompatible with [the] objective" of protecting customers from excessive rates, the customers said (see NGI, Aug. 20, 2007). In that case the customers had then Commissioner (now Chairman) Jon Wellinghoff on their side.

Wellinghoff had filed a dissenting opinion to the order, which set the case for hearing, saying he wanted to include immediate rate relief if the cost and revenue study Southwest was required to file in 45 days bore out studies filed by the complainants. He was overruled.

Fast forward to last week and the last-minute additions of the Section 5 cases to the docket, which allowed no time for evasive action. And note that Chairman Wellinghoff called for an expedited schedule with the filing of the cost and revenue reports by Jan. 3. FERC's chief administrative law judge followed up the next day by designating law judges for each case and setting guidelines for the procedural schedule.

The cases are the first Section 5 investigations of pipeline rates since FERC in Order 636, which opened up nondiscriminatory transportation in 1992, agreed to suspend its requirements for rate filings and revenue investigations every three years. Pipelines could file for new rates but it was not required, and some pipes that had curtailed service or cut their spending simply collected higher returns.

After last year's presidential election, but before a new administration and new chairman took office, the Commission also suspended its notice of inquiry into whether pipelines were over-recovering fuel costs (see NGI, Nov. 24, 2008), saying it would deal with the question on an individual pipeline basis. In Thursday's order on the Section 5 complaint against NGPL FERC also said preliminary study showed over-collection of fuel costs.

For pipeline customers and shippers FERC's action last week was a pleasant surprise. But "we're not out to get all the pipelines," a customer spokesman told NGI. "There are just some of them, like NGPL, where the situation is totally out of line. I'm not sure why they included Northern Natural. Their rates overall weren't that high; it looks like they just had a good year."

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