FERC has terminated its Section 5 complaint proceeding against Northern Natural Gas Co. pipeline for overrecovery of cost of service in exchange for the pipeline agreeing to a one-year rate freeze for shippers.

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 will not move higher rates into effect prior to Nov. 1, 2011.

Northern Natural shippers asked the Federal Energy Regulatory Commission last month 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 were terminated now [RP10-148].

The customers based their request on documentation that showed a significant drop in Northern Natural’s field revenues. “While Northern’s monthly field area revenues averaged about $13.4 million during the period November 2008 through March 2009, they averaged only about $5.3 million during the same period one year earlier,” said a FERC order (see Daily GPI, May 10).

The customer group said that “while some cost-of-service items are ripe for challenge [in the Section 5 proceeding],” it believes that the cost of service Northern will claim in a Section 4 rate case, when coupled with the decline in field area firm and interruptible billing determinants, will generate rates substantially above the current rates even under Northern’s current market area/field area cost allocation method.

“Customers representing 96% of entitlements on Northern’s system, as well as four state commission intervenors and a consumer advocate, all either support or do not oppose the customer group’s motion,” the order said.

“We agree 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,” the Commission order said.

“Trial staff argues the Commission should not yield to such ‘threat’ because otherwise ‘no Section 5 investigation would survive.'” FERC trial staff further said its analysis of Northern Natural’s Form 2 for 2009 would show that the pipeline had a return on equity (ROE) in excess of 19%. Moreover, it contends that the pipeline would continue to overrecover its cost of service by more than $100 million under its current rates.

Last November FERC staff said its preliminary investigation showed that Northern Natural’s estimated ROE was 24.36% with an overrecovery of $167 million (see Daily GPI, Nov. 20, 2009).

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