In a rare move that eliminates huge legal costs, Kern River GasTransmission has submitted to FERC a negotiated settlementagreement on its rate design prior to the start of a general ratecase (RP99-274). The agreement has the approval of all of itsshippers. Kern’s general rate case was scheduled to begin thismonth.
The settlement calls for a departure from straight-fixedvariable rate design, including the shifting of about 6 cents (outof 67 cents) to the commodity portion of Kern’s firm rates from thedemand portion. About $14.7 million, or 8.5% of its annualsettlement cost of service, is being reclassified to the commodityportion of its rates. The change places more risk of cost recoveryon the pipeline company. In addition, Kern River has signed arevenue-sharing agreement with its shippers that would reward bothshareholders and ratepayers equally if the pipeline brought in morethan $177.3 million in revenues annually. The figure is quite a bithigher than revenues collected in prior years, but it takes intoaccount the likelihood Kern revenues will increase in the future.
“I’m not sure the last time you saw a rate case settled beforeit ever got filed. That’s what we’ve done here,” said Steven Snarr,vice president and general counsel for Kern River. “It’s unique inthat all of our firm shippers are supporting it as well as many ofthe interruptible and replacement shippers as we could round up andget votes from,” he said. “They seemed to coalesce around the shiftof some costs; it’s not a significant amount, but some costs areshifted to commodity away from SFV.”
Shippers also apparently were lured into settling by thesystemwide firm rate discount of 2 cents/Mcf to 67 cents/Mcf thatKern offered in January to all long-term firm and seasonal firmcustomers who signed a letter of intent to support the agreement.The discount will continue as Kern’s new rates following FERC’sdecision on the settlement.
“This is consistent with the efforts at FERC to place greateremphasis on alternative dispute resolution procedures., and itsaved a lot of litigation costs and time during a period in whichhigher rates potentially would have been in effect,” said KatherineEdwards, a Washington, D.C. attorney who represented severalshippers in the negotiations. “From everyone’s perspective, I thinkit was a very beneficial procedure.”
According to the settlement, Kern River also must not file for arate increase for the three years following the effective date ofthe settlement and must file a general rate case in five years. Thepipeline is requesting an effective date of May 1.
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