Pipeline customers who failed to get lower rates on Panhandle Eastern Pipe Lines’ Southwest Gas Storage service by filing their own Natural Gas Act (NGA) Section 5 complaint [RP07-34] several years ago, nevertheless may have laid the groundwork and inspired the strategy for a FERC surprise action last week that calls for formal investigations of three pipelines for possible over-recovery in their rates.

The Federal Energy Regulatory Commission took the industry by surprise last week, adding the three Section 5 complaints against Natural Gas Pipeline Co. of America (NGPL), Northern Natural Gas and Great Lakes Gas Transmission to the docket of its regular meeting Thursday at the last minute and following up with an expedited schedule that requires the pipelines to file cost and revenue statements in 45 days (see Daily GPI, Nov. 20).

In the previous case, first filed in 2006, customers had claimed that Southwest Gas had over-recovered its costs as much as 60%. But the case was ultimately settled without a rate reduction, Susan Ginsberg, regulatory affairs vice president for the Independent Petroleum Association of America (IPAA), said when Southwest Gas at the last minute filed a Section 4 case for higher rates after quickly filing for a certificate for new construction.

“Permitting a regulated utility to avoid potentially adverse results of litigation by kicking over the chessboard on the eve of trial to improve its odds is incompatible with [the] objective” of protecting customers from excessive rates, the customers said (see Daily GPI, Aug. 15, 2007). In that case the customers had then Commissioner (now Chairman) Jon Wellinghoff on their side.

Wellinghoff had filed a dissenting opinion to the order, which set the case for hearing, saying he wanted to include immediate rate relief if the cost and revenue study Southwest was required to file in 45 days bore out studies filed by the complainants. He was overruled.

Fast forward to last week and the surprise additions to the docket, allowing no time for evasive action. And note that Chairman Wellinghoff called for an expedited schedule with the filing of the cost and revenue reports by Jan. 3. FERC’s chief administrative law judge followed up the next day by designating law judges for each case and setting guidelines for the procedural schedule.

The cases are the first Section 5 investigations of pipeline rates since FERC in Order 636, which opened up nondiscriminatory transportation in 1992, agreed to suspend its requirements for rate filings and revenue investigations every three years. Pipelines could file for new rates but it was not required, and some pipes that had curtailed service or cut their spending simply collected higher returns.

A five-year cost and revenue study from 2003-2007 by the Natural Gas Supply Association (NGSA) had NGPL No. 1 with a five-year average ROE of 34%; Great Lakes was No. 6 with an average of 20%, and Northern Natural had an average of 14%. Other pipelines with five-year averages above 20%, according to NGSA, included Kinder Morgan Interstate Gas Transmission, Panhandle Eastern Pipe Line, Dominion Transmission, Mojave Pipeline and Transwestern Pipeline. Eighteen pipelines had five-year average ROEs above 13%.

Before the changing of the guard, the Commission also suspended its notice of inquiry into whether pipelines were over-recovering fuel costs (see Daily GPI, Nov. 21, 2008), saying it would deal with the question on an individual pipeline basis. In Thursday’s order on the Section 5 complaint against NGPL FERC also said preliminary study showed over-collection of fuel costs.

“We’re not out to get all the pipelines,” a customer spokesman told NGI. “There are just some of them, like NGPL, where the situation is totally out of line. I’m not sure why they included Northern Natural. Their rates overall weren’t that high; it looks like they just had a good year.”

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