Tuscarora Gas Transmission Co. Friday submitted to FERC a settlement of the Section 5 complaint accusing the pipeline of significantly overrecovering its cost of service, making its current transportation rates “unjust and unreasonable.”

“The settlement provides for a reasonable and comprehensive resolution of the issues set for hearing. [It] is a carefully crafted and delicate compromise among many parties with diverse and often conflicting interests. It is an integrated package and settling parties request that it be approved in its entirety,” said Tuscarora, which is principally owned by TransCanada subsidiary TC Pipelines LP.

The complaint was filed by the Public Utilities Commission of Nevada (PUC) and Sierra Pacific Power Co., a subsidiary of the Las Vegas-based holding company NV Energy Inc. The Federal Energy Regulatory Commission began a Section 5 investigation of Tuscarora’s rates based on the results of the pipeline’s last two Form 2-A filings (see NGI, May 30, 2011).

The filings revealed that Tuscarora’s return on equity was 22.2% for 2008 and 27.2 % for 2009 — far above what the Commission typically allows for interstate gas pipelines. Tuscarora is a 229-mile pipeline that serves Nevada and southwestern California.

The settlement was to take effect Jan. 1 if the Commission approved it without making any changes. It would establish a two-year rate moratorium: Jan. 1, 2012 through Dec. 31, 2014 [RP11-1823].

“Tuscarora, and any successor, assignee or affiliate, will not initiate, undertake, pursue, seek, advocate, support, aid or abet any effort to implement a change or adjustment to any provision of this settlement that would become effective during the moratorium, pursuant to Section 4 of the NGA [Natural Gas Act] or any other statutory provision, at the Commission or with any other government authority or regulatory body having jurisdiction over Tuscarora, to modify, increase or otherwise change in any way the settlement rates, or other provision of this settlement,” the pipeline said.

However, during the moratorium period, Tuscarora may 1) file tariff provisions or make any filing mandated by legislation or regulations or to comply with the requirements of any order resulting from any FERC rulemaking proceedings; 2) make any filings proposing to construct and operate new facilities or 3) to provide new services, or propose new terms or conditions of services.

Under the settlement, Tuscarora can file to adjust rates prospectively to reflect the cost of service impact of certain “eligible costs,” defined as costs resulting from new or revised requirements, regulations or legislation addressing 1) environmental mandated changes; 2) compliance with Environmental Protection Agency-mandated use of best available control technology for emissions; 3) Commission-mandated generic pipeline initiatives implemented on an industrywide basis; and 4) additional pipeline safety requirements issued by the Department of Transportation Pipeline and Hazardous Materials Safety Administration as a result of either new legislative or administrative regulations or mandates that alter existing pipeline safety requirements or impose new mandates for new activities.

This “shall apply to eligible costs that exceed, on an annual cost of service basis, $1.5 million, and Tuscarora may only recover, prospectively, an annual cost of service amount that exceeds this threshold in any one calendar year,” the settlement said.

In addition to Nevada PUC and Sierra Pacific Power, other parties to the settlement are Shell Energy North America (US) LP, Southwest Gas Corp., Plumas-Sierra Rural Electric Cooperative, United States Gypsum Co., IGI Resources Inc. and Northwest Pipeline.

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