FERC dealt KN Interstate Gas Transmission a serious blowrecently in ordering the pipeline to explain a 41% overrun in thecost of its Pony Express Pipeline Project and prove the projectstill meets the Commission’s test for rolled-in rate treatment.

The Commission previously had awarded KNI a rolled-inpresumption based on facility costs of $159.2 million. But thepipeline company, as part of its general rate case filing, reportedthat conversion and construction costs had climbed to $224.8million, up $65 million.

This is a “significant change,” the FERC order said, adding KNIhas failed to show these new costs could meet the 5% threshold testfor rolled-in rates [RP98-117]. It further put KNI at risk for anyunder-recoveries associated with the pipeline project, whichexperienced several delays last fall because of the presence ofliquids in the line. The pipeline is a converted oil line thatdelivers Rocky Mountain gas to markets in the Midcontinent and theMidwest.

Responding to a protest from Midwest Energy, the Commission alsodenied KNI’s request for confidential treatment of several ratesheets and contracts. Midwest argued KNI’s refusal to serve itscustomers with the information is “an attempt to hide the realcosts of requiring existing captive customers to subsidize KNI’sexpansions into new market areas on the east end of its system.”

FERC set these issues, along with a number of others in KNI’srate filing, for hearing. And while accepting KNI’s $30 millionrate increase conditioned on the outcome of the hearing, theCommission suspended the increase for the maximum five-month period(effective Aug. 1).

Rocco Canonica

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.