Industrial natural gas users Monday urged FERC to reconsider its decision to terminate a Section 5 complaint proceeding against Northern Natural Gas for over-recovery of cost of service, saying customers and the agency yielded to the pipeline’s threat of filing higher transportation rates if the case was not closed quickly.

The Process Gas Consumers Group, the American Forest & Paper Association and the United States Gypsum Co. urged the Federal Energy Regulatory Commission to reopen the Section 5 investigation into Northern Natural’s rates, and direct the presiding administrative law judge to order an expedited procedural schedule designed to issue a ruling at the “earliest possible date and…prior to the date that a new Section 4 filing could be made effective, subject to refund.”

Northern Natural “is exploiting a flaw in the legal structure of NGA [Natural Gas Act] Sections 4 and 5 and, the Commission, instead of using all the tools available to it in order to prevent the exploitation of customers, has become complicit in this exploitation by terminating the Section 5 investigation,” the industrial end-users said in their request for rehearing [RP10-148].

As part of the settlement Northern Natural agreed not to file a Section 4 rate case on May 28, proposing a substantial rate hike if the Section 5 complaint case was resolved prior to that time. Northern Natural said it would not move higher rates into effect prior to Nov. 1, 2011.

Northern Natural shippers asked the Commission in May to end the Section 5 investigation of the pipeline’s rates, saying they believed that if it was allowed to proceed, it would likely result in an increase in their rates at an earlier point in time than would be the case if the proceeding was terminated now.

In its decision earlier this month, FERC said it agreed with “these parties that the immediate benefit of the rate certainty provided by Northern’s commitment not to file a Section 4 rate increase until at least May 1, 2011, and not to move those rates into effect until Nov. 1, 2011, outweighs the potential benefits of proceeding with the Section 5 investigation” (see Daily GPI, June 3).

FERC trial staff proposed that the Commission “simply modify the procedural schedule to allow for its [Section 5] decision to issue before the Section 4 rates become effective,” but the Commission “did not take this simple step and did not even address staff’s proposal,” the industrial end-users said.

In his dissenting opinion, FERC Chairman Jon Wellinghoff said the majority’s decision “ignored evidence submitted in this proceeding by Commission trial staff that Northern continues to significantly over-recover its cost of service and Northern’s likely inability to support a rate increase. Further the majority disregards the fact that it is the Commission’s ultimate responsibility to ensure that rates are just and reasonable.”

FERC essentially allowed the Section 4 filing to upstage the Section 5 proceeding, said the American Public Gas Association in May.

FERC trial staff said its analysis of Form 2 data for year-end 2009 indicates that Northern had a return on equity in excess of 19%. Moreover, it contends that the pipeline would continue to over-recover its cost of service by more than $100 million under its current rates. FERC opened its investigation into Northern Natural and two other interstate pipelines last November (see Daily GPI, Nov. 20, 2009).

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