Calling it a "delicate compromise of numerous complex and interrelated issues," a FERC deputy administrative law judge (ALJ) has certified an uncontested settlement that seeks to resolve Section 5 allegations that Natural Gas Pipeline Company of America (NGPL) over-recovered its cost of service.

"The settlement will provide for reduction in transportation and storage rates and fuel retention factors. In addition, the settlement will provide rate certainty during the moratorium period. [And] if approved, the settlement will avoid lengthy and costly litigation and the unnecessary expenditure of resources by the parties" and the Federal Energy Regulatory Commission, said Deputy ALJ Bobbie J. McCartney.

NGPL submitted its offer of settlement earlier this month (see Daily GPI, June 16). Now that McCartney has certified it, the Commission has the option to approve or reject it in whole or in part.

The proposed agreement calls for NGPL's maximum recourse reservation rates for all firm transportation rate schedules to be cut by a total of 8% for the period between Nov. 1 of this year and June 30, 2011. The maximum recourse one-part FTS-G rate also will be reduced by 8% during the same period, according to the proposed settlement.

In addition, it proposes that the maximum recourse reservation rates for all firm storage rate schedules that were in effect April 1 be reduced by 3% effective Nov. 1.

And for the period of July 1 through June 30, 2011, the fuel retention factors that were in effect April 1, 2010 will be reduced by 30%. Effective July 1, 2011, the fuel retention factors that were in effect April 1, 2010 will be reduced by 45%.

Last November FERC initiated Section 5 proceedings against three interstate pipelines -- NGPL, Northern Natural Gas and Great Lakes Gas Transmission -- for over-recovery of cost of services. Agency staff's preliminary investigation indicated that NGPL may have achieved a return on equity (ROE) of 24.5% based on an over-recovery of $149 million [RP10-147], while Great Lakes' estimated ROE was 20.83% with an over-recovery of $56 million [RP10-149]. Northern Natural Gas Co. had an estimated ROE of 24.36% with an over-recovery of $167 million, FERC alleged (see Daily GPI, Nov. 20, 2009).

FERC terminated its Section 5 complaint proceeding against Northern Natural when the pipeline agreed to a one-year rate freeze for shippers (see Daily GPI, June 3). Northern Natural threatened not to file a Section 4 rate case on May 28, proposing a substantial rate hike, if the Section 5 complaint case was resolved prior to that time.

Since then the Process Gas Consumers Group, the American Forest & Paper Association and the United States Gypsum Co. (the Industrials) have asked the Commission to reopen the Section 5 investigation into Northern Natural's rates (see Daily GPI, Jun. 30), as well as direct the presiding ALJ to order an expedited procedural schedule designed to issue a ruling at the "earliest possible date and...prior to the date that a new Section 4 filing could be made effective, subject to refund."

Northern Natural "is exploiting a flaw in the legal structure of NGA [Natural Gas Act] Sections 4 and 5 and, the Commission, instead of using all the tools available to it in order to prevent the exploitation of customers, has become complicit in this exploitation by terminating the Section 5 investigation," the industrial end-users said in their request for rehearing [RP10-148].

In the NGPL case, the Industrials pointed out that "as the NGA currently stands, a pipeline subject to a Section 5 complaint has every incentive to delay the proceedings. Industrials also note that the pipeline has the option to file or threaten to file a new Section 4 case in an effort to moot the impact of the ongoing Section 5 case." To avoid this in the future, they called on Congress to amend the NGA so FERC can set a refund-effective date in Section 5 complaint proceedings.

Great Lakes Gas Transmission's proposed settlement also has been certified, but the full Commission has yet to act on it (see Daily GPI, May 17). FERC staff estimates that "the resulting [rate] savings to those ratepayers will exceed $20 million. Moreover the settlement provides additional revenues to ratepayers, through revenue sharing, if Great Lakes' jurisdictional revenues exceed $500 million, on a net basis, over a two-year period. Further the settlement provides rate certainty for at least one and a half years. [And] finally Great Lakes' rates will be reexamined, in a Section 4 proceeding, within approximately three and a half years."

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