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Pipelines Conceal ROR Data, Producer Charges

September 20, 1999
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Pipelines Conceal ROR Data, Producer Charges

An executive with Conoco Inc. last week accused interstate pipelines of intentionally burying information that customers need to determine whether pipes are exceeding their authorized rates of return (RORs), which he strongly suspects is the case.

The "information that shippers and producers and end-users need to understand the pipeline's return [goes] underground" when it's being sought, said J. Mike Stice, manager of gas marketing, natural gas and gas products for Conoco at the 11th annual LDC Forum in Chicago, IL. "We can't get to the data, we can't get to the information," he noted, adding that "even simple things like capacity and throughput of major pipelines" were hard to come by.

Although the average authorized ROR for pipelines is 12%, the composite average ROR for 28 major pipelines has been 15.1%, with three pipelines RORs exceeding 20%, Stice said. This compares to a 6% ROR on investments for the exploration and production sector "as a whole," he told about 500 gas purchasers and pipeline executives at the Forum, sponsored by Interchange Energy Group. Stice contends the "excess profits" being enjoyed by pipes as a result of the higher RORs have been "exasperating the conditions at the wellhead," driving producers to their incremental costs to produce and causing the cancellation of long-lead time exploration efforts.

If pipeline RORs are so good, maybe Conoco should consider buying itself a pipeline, suggested one Forum attendee. adding that Columbia Energy was "up for sale" now. "...I don't think any of the producers envisioned that this would be a 15-20% return business when they exited the pipeline business," Stice countered. "So you can imagine it does have producing chairmen looking at pipelines."

That "15% [ROR] number has been thrown around a lot," said Carl W. Levander, manager of regulatory analysis for Columbia Gas Transmission and Columbia Gulf Transmission. "I would simply not pick numbers out" of the Form 2s, which pipes are required to file at FERC, and equate them to a pipeline's ROR, he noted, adding that this was an "iffy prospect."

"This is a cost-based, regulated business. We would like to know what the numbers are. And if the Form 2s don't provide the data that allow us to understand it, then what does? We need to know that information," Stice said.

Information on pipeline operations has become especially scarce now that pipes generally aren't required to file Section 4 rate cases under the Natural Gas Act, he noted. This "has resulted in transportation rates that are considerably higher than needed for pipelines to recover their costs, to realize commensurate returns on their investments and to attract needed capital for expansions." Customers "have little information to test the just and reasonable claims of pipelines without engaging in a very complicated and costly process," Stice said.

He called on FERC to establish procedures for the "periodic freshening" of pipeline rates to avoid overrecovery on RORs. He further said existing pipeline rates need to be "brought in line with the current factors and data that form the basis for the Commission's cost-based pipeline rate calculation." Stice also championed an incentive mechanism to promote cost efficiency on pipelines. Lastly, the process "should be as simple and efficient as possible to reduce the total resources devoted throughout the industry to pipeline ratemaking."

Susan Parker

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