Establishing a fair return on equity (ROE) formula for interstate pipelines will continue to be a critical natural gas issue for the Federal Energy Regulatory Commission in the months ahead, said new Commissioner Marc Spitzer Tuesday.

“In terms of matters before us, coming up with an adequate return on equity is important,” Spitzer, a former Arizona regulator, told energy executives and regulators at the Natural Gas Roundtable in Washington, DC. “The issue is you got to be fair to the shippers. You got to be fair to the customers. [And] you got to give a fair rate of return to the applicant.”

The Commission ruled on a much-watched ROE case involving Kern River Gas Transmission last month (see Daily GPI, Oct. 20). The agency adopted a double-digit ROE of 11.2% for Kern River Gas Transmission — higher than the single-digit 9.34% ROE that was recommended by an administrative law judge — but the pipeline is seeking rehearing nonetheless (see Daily GPI, Nov. 22). It contends that other actions taken by the agency in the order will make the 11.2% ROE “structurally unachievable.”

Spitzer declined to comment on a recent federal appeals court ruling that vacated a 2004 FERC order restricting interstate natural gas pipelines’ interactions with an expanded sphere of energy affiliates. The U.S. Court of Appeals for the District of Columbia Circuit said FERC had failed to provide evidence of abuse to justify its decision to broaden the reach of its standards of conduct to include energy affiliates other than marketing affiliates (see Daily GPI, Nov. 20). The court sided with then-Commissioners Joseph Kelliher and Nora Brownell, both of whom dissented from the order.

“I don’t want to comment on the legal vagaries” of the case, he said. “If you read that decision and particularly note [now Chairman Kelliher’s] dissent, I told him maybe you don’t want to count this as a loss.” Spitzer would not say if the Commission intends to act on remand.

He also was evasive when asked whether he planned to pursue the post of FERC chairman next year, given that Kelliher’s term expires in June 2007. “I support the chairman. I think he’s doing a fabulous job.”

Another important issue for FERC will be the siting of natural gas facilities, where “public safety is paramount,” Spitzer said. He noted that the “siting authority is going to be decided on a case-by-case basis,” rather than on a regional basis as some would prefer for liquefied natural gas (LNG) terminals. Opponents of LNG facilities, particularly those in New England, believe the Democratic takeover of Congress will bring with it a renewed pressure on FERC to take a regional approach to the siting of LNG terminals.

On the electric side, Spitzer said he had “mixed feelings” about a recent final rule that gives FERC the authority to consider requests for interstate electric transmission construction permits if a state siting agency has “withheld approval” on a project for more than one year or it has imposed conditions on a project that would prevent it from significantly reducing transmission congestion. Commissioner Suedeen Kelly dissented, saying that the order preempted states’ authority to site electric transmission facilities. Spitzer voiced similar concerns, but still voted for the order.

“I had mixed feelings about this provision as a state commissioner because I felt by and large the states did a good job in siting transmission lines,” he said. However, “I feel that the FERC rule faithfully implemented the intent of Congress.”

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