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FERC Initiates Section 5 Investigation of Tuscarora Pipe Rates

FERC Tuesday set for hearing a Section 5 complaint accusing Tuscarora Gas Transmission of significantly overrecovering its cost of service, making its current transportation rates "unjust and unreasonable."

The complaint was filed by the Public Utilities Commission of Nevada (PUC) and Sierra Pacific Power Co., a subsidiary of the Las Vegas, NV-based holding company NV Energy Inc. The Federal Energy Regulatory Commission has begun a Section 5 investigation of Tuscarora's rates under Section 5 of the Natural Gas Act (NGA), and has ordered the pipeline, which is owned by TransCanada subsidiary TC Pipelines LP, to file a full cost and revenue study within 75 days of the order [RP11-1823]. The commission declined to act on complainants' request for interim relief until after Tuscarora has filed its cost and revenue study.

The Nevada PUC and Sierra Pacific contend that, based on the pipeline's last two Form 2-A filings, Tuscarora's return on equity (ROE) was 22.2% for 2008 and 27.2 % for 2009 -- far above what the Commission typically allows for interstate gas pipelines. Tuscarora is a 229-mile pipeline that serves Nevada and southwestern California.

In its defense, Tuscarora pointed out that FERC did not include it in the Section 5 investigations of pipelines that were initiated during the past two years. In late 2009 FERC initiated a Section 5 investigations of three interstate pipelines -- Natural Gas Pipeline Co. of America, Northern Natural Gas and Great Lakes Gas Transmission Ltd. -- for potentially overrecovering their rates (see Daily GPI, Nov. 20, 2009). And in November 2010 it launched similar investigations of Kinder Morgan Interstate Gas Transmission LLC and Ozark Gas Transmission LLC (see Daily GPI, Nov. 24, 2010).

But the Commission found no merit in Tuscarora's argument. "The fact that the Commission initiated investigations of other pipelines based upon their 2008 or 2009 Form 2s [data], but did not initiate an investigation of Tuscarora based on Tuscarora's filings in those years, is irrelevant to the issues presented by the complainants here," the order said.

"Complainants have raised serious questions as to whether Tuscarora's current rates allow it to recover revenue in excess of its costs...The complainants' analysis of the Form 2-A data Tuscarora filed for the years 2008 and 2009 indicates that Tuscarora's ROE was 22.2% for 2008 and 27.2% for 2009," it noted.

"In its answer [to the complaint], Tuscarora does not dispute the complainant's allegations concerning the years 2008 and 2009. In addition, Tuscarora does not indicate that there have been any significant changed circumstances on its system since 2009 that would affect the justness and reasonableness of its rates, except for a change in its capital structure.

"As the complainants recognize, and as shown in Tuscarora's recent Form 2-A filing, during 2010 Tuscarora adjusted its capital structure from approximately 30% equity to 70% equity. However, the Commission does not view this one change, without any other significant change in Tuscarora's costs and revenues, as a sufficient reason not to exercise our discretion to initiate an investigation of Tuscarora's rates under NGA Section 5 in light of the unrefuted contentions by complainants regarding Tuscarora's potential overrecovery of its cost of service," the order said.

"While the Commission makes no findings in this order concerning the reasonableness of Tuscarora's current capital structure, the Commission finds that this issue, together with all other issues concerning the reasonableness of Tuscarora's rates, warrants investigation at a hearing," it noted.

FERC has directed an administrative law judge to issue an initial decision within 47 weeks.

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