Nick Snow
Washington Editor
The US Federal Energy Regulatory Commission launched investigations on Nov. 18 into rates charged by Kinder Morgan Interstate Gas Transmission LLC (KMIGT) and Ozark Gas Transmission LLC (OGT) to determine if the interstate natural gas pipelines are overcharging their customers.
FERC also directed each company to file a full cost and revenue study within 75 days. It also ordered a presiding administrative law judge to convene a prehearing conference with each pipeline within 30 days to clarify participants' positions and establish discovery dates.
The investigations came a year after FERC initiated proceedings under Section 5 of the Natural Gas Act against several interstate gas pipelines, Chairman Jon Wellinghoff said. "Two of those proceedings have since resulted in uncontested settlements that provide significant benefits such as reduced rates, reduced fuel retention factors, and, in one case, a revenue sharing arrangement with pipeline customers," he said.
FERC said the investigations stem from its reviews of Form 2 cost of service and revenue information which the two pipelines submitted in 2008 and 2009. It said that it revised the form in 2008 with Order 710 to enhance interstate pipelines' financial transparency.
KMIGT's 5,100-mile system runs through Colorado, Wyoming, Kansas, Nebraska, and Missouri, and includes a Cheyenne County, Neb., gas storage facility with an estimated 10 bcf of firm capacity commitments, according to FERC. It said that OGT owns and operates a 565-mile interstate pipeline system in Arkansas, Missouri, and Oklahoma.
Estimated returns
It said that based on a FERC staff review of KMIGT's cost and revenue information from its 2008 and 2009 Form 2 submissions, inclusive of the dollar value of excess fuel which the company retained, its estimated return on equity was 27.1% for 2008 and 29.25% for 2009. Excluding the retained excess fuel's dollar value, returns on equity were 15.69% in 2008 and 17.81% in 2009, it said.
From OGT's Form 2 reports, FERC said that its staff calculated that the pipeline's estimated return on equity, including revenue from sales of shipper-supplied gas, was 27.81% in 2008 and 31.01% in 2009. Excluding that revenue, Ozark's estimated ROE was 15.25% in 2008 and 25.63% in 2009, FERC said.
"The commission understands that review of Form 2 data is not the full story, and must be considered in conjunction with other factors, such as the costs and risks of litigation, the level of infrastructure investments, and the existence of a rate moratorium or come-back provision," Wellinghoff said. "However, an investigation will provide the commission with the opportunity to hear the full story, and to ensure that consumers enjoy reliable, efficient and sustainable energy services at a reasonable cost."
He said because FERC lacks refund authority under the NGA's Section 5, it is appropriate to seek an expedited resolution. "Therefore, we direct that an initial decision be issued within 47 weeks of the designation of a presiding judge, consistent with the ALJ's time frame for hearings," Wellinghoff said. "The expedited schedule is not intended to foreclose the pipeline, its customers, and commission litigation staff from reaching a reasonable settlement."
In a separate statement, commission member Philip D. Moeller added, "Pipeline fundamentals inevitably diverge from the static base year and the rates should reflect such change. Whether these changes stem from the discovery of new supply areas or reflect an evolution in shipper behavior or fluctuations in demand, the assumptions upon which rates are developed are always changing."
He also encouraged the pipelines, their customers, and other interested parties to either negotiate a settlement or help expedite a hearing.
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