FERC Chief Administrative Law Judge (ALJ) Curtis L. Wagner Jr. issued two orders Monday that lay the groundwork for Natural Gas Act Section 5 proceedings into allegations that Kinder Morgan Interstate Gas Transmission LLC and Ozark Gas Transmission LLC over-recovered their cost of service in 2008 and 2009, potentially resulting in unjust and unreasonable rates for shippers.

Wagner has scheduled prehearing conferences for Ozark Gas Transmission and Kinder Morgan Interstate on Dec. 1 and Dec. 8, respectively, to determine the position of the parties and establish a procedural schedule.

Due to the potential for continued over-recovery of revenues, the two proceedings at the Federal Energy Regulatory Commission will be expedited to the maximum extent possible, the orders said [RP11-1495, RP11-1494]. The proceedings will be subject to track two of the procedural standards for hearing cases, which requires that an ALJ initial decision in both cases be issued by Oct. 12, 2011, he said.

Deputy Chief ALJ Bobbie J. McCartney has been chosen to preside over the Kinder Morgan Interstate proceeding, while ALJ Carmen A. Cintron has been designated for the Ozark Gas Transmission case.

FERC ordered the Section 5 investigations of Kinder Morgan Interstate and Ozark Gas Transmission last Thursday (see Daily GPI, Nov. 19).

Based on the cost and revenue information submitted by Kinder Morgan Interstate in its 2008 and 2009 Form 2, including the dollar value of excess fuel retained by the pipeline, FERC staff reported that Kinder Morgan's estimated return on equity (ROE) for 2008 was 27.10% and 29.25% for 2009 -- both well above the norm for the pipeline industry. Even excluding the fuel retained by Kinder Morgan Interstate in the two years, FERC staff said the ROE still was above the norm -- 15.69% in 2008 and 17.81% in 2009.

Similarly, FERC staff calculated that Ozark Gas Transmission's ROE, including revenues received from the sale of shipper-supplied gas, was 27.81% in 2008 and 31.01% in 2009. Absent sales of shipper-supplied gas, the Commission estimates that Ozark Gas Transmission's ROE was 15.25% in 2008 and 25.63% in 2009.

Both pipelines were ordered to file their own full cost and revenue studies within 75 days. Spectra Energy Partners LP, Ozark's parent company, immediately responded, saying its returns in 2009 were the result of a special situation and that it is projecting lower returns for 2010 and 2011.

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