Both Northwest Pipeline and Duke Energy were off in their estimates of how much Duke Energy owes Northwest for building lateral facilities for a planned power generation project in Washington State that was later canceled, FERC said last Wednesday.
In its request for a declaratory order, Northwest asked FERC to declare that it correctly interpreted its tariff provisions related to facility reimbursement payments when it estimated Duke Energy owed it $124 million for the construction of lateral facilities that were intended to serve the Grays Harbor generation plant near Olympia, WA, which was never completed.
Duke Energy Trading and Marketing (DETM), which assumed the transportation agreement of Duke Energy Grays Harbor, disputed Northwest Pipeline’s calculation and agreed to pay only $93 million. It forwarded that amount to the pipeline in January 2005.
Northwest claimed that DETM’s lower estimate stemmed from a different interpretation of the term “related income taxes” found in its tariff. The Williams pipeline said that, when calculating a termination payment, the term applied only to future tax benefits. But DETM countered that “related income taxes” applied to both past and future tax benefits. FERC said neither interpretation would achieve the “appropriate result.”
More to the point, the Federal Energy Regulatory Commission “finds that neither Northwest nor DETM have properly determined the facilities reimbursement amount,” the order said [RP05-379]. “The termination payment, if properly determined, should leave Northwest with enough cash to recoup its remaining capital investment in the Grays Harbor facility, after taking into consideration the payment of taxes on the termination payment and net present value of the future tax benefits on the remaining tax basis existing at the time of the buyout. Under this premise, Northwest’s termination billing of $124.4 million will allow it to collect more from DETM than [is] needed to recover its capital investment and related income taxes on the Grays Harbor facility,” it noted.
“On the other hand, the $93.96 million DETM asserts is the correct amount of the termination payment will lead to an under-recovery of Northwest’s capital investment and related income taxes on the Grays Harbor facility,” the order said.
“The Commission agrees with the general approach used by DETM in determining the termination payment. However, certain calculations must be revised to properly compensate Northwest for the contract termination. Specifically, DETM’s calculation must be revised to eliminate the compound interest computed on Northwest’s past tax depreciation deductions… Additionally, DETM’s calculation must be revised to reflect the actual remaining depreciable tax lives of the assets in its present value calculation.”
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