A group of Northern Natural Gas shippers has called on FERC to terminate later this month a Section 5 complaint proceeding against the pipeline for overrecovery of its cost of service if the pipeline agrees not to seek a rate increase prior to or on May 1, 2011 or put higher rates into effect prior to Nov. 1, 2011.

"The goal of a Section 5 [complaint] proceeding is to determine whether rates should be reduced, prospectively...Therefore should it become apparent at any point during a Section 5 proceeding that the end result of the process may well be a rate increase, the investigation should be brought to an end," said the Northern Customer Group, which includes Black Hills Energy, CenterPoint Energy Minnesota Gas, Metropolitan Utilities District, MidAmerican Energy Co. and Xcel Energy companies (Northern States Power Co.-Minnesota, Northern States Power Co.-Wisconsin and Southwestern Public Service Co.).

For these reasons, "the customer group believes it is now readily apparent that the Section 5 investigation of Northern's rates, if allowed to proceed, likely will result in an increase in customer rates at an earlier point in time than would be the case if the proceeding were terminated now," the group told the Federal Energy Regulatory Commission (FERC).

Settlement negotiations between Northern Natural Gas and its shippers reached an impasse on May 3, according to the customer group. And the pipeline is now poised to file a Section 4 rate case on May 28, which will likely portend "substantially higher rates," if this complaint proceeding is not terminated, it said.

"Based on the record compiled to date in the Section 5 proceeding, the customer group believes that the increased rates in the Section 4 filing will be driven to a significant degree by proposed changes in cost allocation that will seek to shift to Northern's customers the risk that Northern currently bears for recovering costs of its underutilized Field Areas facility," the customer group said.

FERC in November initiated Section 5 investigations into whether Northern Natural Gas and two other interstate pipelines -- Natural Gas Pipeline of America (NGPL) and Great Lakes Gas Transmission Ltd. -- have been overrecovering their cost of service. If so, their rates would no longer be just and reasonable (see NGI, Nov. 23, 2009).

The staff's preliminary investigation of financial information submitted by the pipelines for 2008 indicated that Northern Natural's estimated return on equity (ROE) was 24.36% with an overrecovery of $167 million, while NGPL may have achieved a ROE of 24.5% based on an overrecovery of $149 million (CP10-147), and Great Lakes estimated ROE was 20.83% with an overrecovery of $56 million (RP10-149). Northern Natural sought to dispute FERC's charges (see NGI, Nov. 30, 2009).

The Northern Natural Gas case so far has eluded a settlement as Administrative Law Judge John P. Dring and FERC trial staff have sparred during the Section 5 proceeding, particularly over what the judge called trial staff's stubbornly disobedient conduct. Chairman John Wellinghoff has referred the disputed issues to the full Commission for resolution (see NGI, May 3).

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