Natural Gas Pipeline Company of America (NGPL) Thursday filed a cost and revenue study for the 12-month period ending in October 2009, defending itself against FERC Section 5 charges that it was over-recovering its cost of service. NGPL was one of three pipelines accused by the Federal Energy Regulatory Commission of collecting a return on equity in 2008 of more than 20%, well above Commission guidelines (see Daily GPI, Nov. 20, 2009).

Great Lakes Gas Transmission Ltd. Partners and Northern Natural Gas also filed Thursday in response to the FERC allegations (see Daily GPI, Feb. 5).

NGPL filed two cost and revenue studies that the pipeline claims show it under-recovered its cost of service for the 2009 period. FERC had published its analysis of the pipelines’ 2008 financials and requested the cost and revenue studies for the 2009 period.

One of NGPL’s studies reported an overall cost of service of $928.1 million for the 12-month period in 2009. At its current rates NGPL would under-collect its cost of service by $316.1 million, the pipeline told FERC. The second cost and revenue study resulted in an overall cost of service of $2.03 billion, with an under-collection of $1.418 billion at current rates.

The latter study made an adjustment to NGPL’s cost of service to “reflect the difference between the price paid in February 2008 by Myria Holdings to acquire an 80% interest in [NGPL] and [NGPL’s] depreciated original cost as of Feb. 15, 2008,” NGPL said. Myria Holdings, an investment holding company, purchased 80% of NGPL from Kinder Morgan Inc. in February 2008.

The Commission staff’s preliminary investigation of financial information submitted by the pipelines for 2008 indicated that NGPL may have had an over-recovery of $149 million in 2008 based on a return of equity (ROE) of 24.5%.

Because NGPL’s “costs exceed revenues by $316.1 million under the Appendix A study and $1,418.6 million under the Appendix B study, there is no basis for the Commission to order any change in [NGPL’s] currently effective rates for its jurisdictional services,” the pipeline argued [RP10-147].

Great Lakes filed a cost and revenue study as well, citing a cost of service of $262.78 million based on a ROE of 10.44% during the 12-month period in 2009, but it was unclear from the 97 pages of numerical tables whether the pipeline under- or over-recovered its operating revenue during that period. Calls to pipeline management and TransCanada, which holds a controlling interest, were not returned by press time. According to FERC, Great Lakes’ adjusted revenue was $290 million in the 2008 period, and the cost of service calculated by the Commission was $233 million indicating an over recovery of $56 million for 2008 [RP10-149].

In November FERC initiated formal Natural Gas Act Section 5 investigations of NGPL, Northern Natural Gas and Great Lakes Gas Transmission based on preliminary studies that indicated the three may be significantly over-recovering their cost of service, which would render their rates no longer just and reasonable.

MidAmerican Energy’s Northern Natural Gas pipeline Thursday also defended itself against the allegations leveled by FERC. Northern Natural reported a cost of service of $597 million and operating revenue of $534 million for the 12-month period ended in October 2009, for an under-recovery of $62.9 million and estimated ROE of 7.99%.

This contrasted with FERC staff’s preliminary investigation that Northern Natural Gas, based on information submitted by the pipeline, had a cost of service of $558.7 million and operating revenue of $726 million during 2008, for an over-recovery of $167 million and ROE of 24.36%. The major difference between the two time periods is that Northern Natural’s contracted and throughput volumes during 2008 were at an all-time high compared to 2009, said spokesman Mike Loeffler. Utilization of Northern Natural’s system, particularly the field-area system, has declined significantly since then and continues to fall, he noted.

NGPL was ranked No. 1 with a five-year ROE ending in 2007 of 34%, according to a list compiled by the Natural Gas Supply Association. Great Lakes was No. 6 with an average of 20%, and Northern Natural had an average of 14%. FERC probably would deem an acceptable ROE at 12% or less.

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