A municipal gas distributor group has called on FERC to disregard the “extra-record fusillade” from interstate pipelines seeking to persuade the agency to overturn a controversial decision recommending a significantly lower return on equity (ROE) for Kern River Gas Transmission, a ruling that pipes fear could signal a trend.
The American Public Gas Association (APGA) “does not seek by this letter to urge the Commission to decide the Kern River case in a particular fashion; that would be inappropriate. Rather, APGA urges the Commission to ignore the extra-record fusillade launched by the pipeline industry to convince the Commission that it should reverse Kern River not on the basis of the record but on the basis of time-worn threats that failure to take certain action…will undermine the pipelines’ ability to raise capital for new infrastructure,” wrote APGA President Bert Kalisch in a letter to FERC Commissioner Jon Wellinghoff last month, which was only made public last Wednesday.
The APGA is concerned by the “number and extent of the ex parte contacts with the Commission” by the pipeline industry since March when FERC Administrative Law Judge Charlotte J. Hardnett recommended an ROE of 9.34% for Kern River, considerably below the pipeline’s request of 15.1% and its current ROE of 13.25% (see NGI, March 27).
“The pipeline industry has used the presiding judge’s initial decision in that case as the basis for a well-orchestrated congressional letter-writing campaign…and most recently a ‘study’ underwritten by the pipeline trade association, all intended to convince the Commission that the record-based findings of the presiding judge in Kern River, if sustained by the Commission, will adversely affect pipeline infrastructure expansion by making it difficult for pipelines to secure sufficient capital to finance such expansion,” Kalisch noted.
“We disagree with the pipeline industry’s argument. It appears to us that pipelines are very healthy financially. Proof of that appears to have come most recently with the announcement that Kinder Morgan Inc. signed a definitive agreement with a private investor group that is anteing up $15 billion to take Kinder Morgan private — an offer that represents a 27% premium over the company’s stock price at the time the offer was made. Other persuasive evidence of pipeline financial health is provided by a review of their earnings.”
The study cited by the APGA was commissioned by the Interstate Natural Gas Association of America, which represents interstate gas pipelines, and was conducted by Chicago-based Navigant Consulting Inc. The study, which was released in August, concluded that if the Federal Energy Regulatory Commission allows ROEs for gas pipelines to fall into the single-digit range, it would likely have a “chilling effect” on investment in new pipeline infrastructure (see NGI, Aug. 28).
The INGAA study took a critical view of the agency’s adherence to the traditional discounted cash flow (DCF) methodology for determining pipeline ROEs, according to APGA’s Kalisch. “This most current attack on the DCF seeks to have the Commission reverse recent precedent…that master limited partnerships are not suitable proxy companies for determining a fair equity return in the natural gas pipeline industry.”
©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |