FERC issues first ROE order incorporating MLPs

The Federal Energy Regulatory Commission rejected a Kern River Gas Transmission Co. settlement on Jan. 15 in its first return-on-equity (ROE) order under its 2008 policy statement.

Nick Snow
Washington Editor

WASHINGTON, DC, Jan. 22 -- The Federal Energy Regulatory Commission rejected a Kern River Gas Transmission Co. settlement on Jan. 15 in its first return-on-equity (ROE) order under its 2008 policy statement.

The commission found that Kern River's 12.5% ROE was excessive and would result in unjust and unreasonable rates. It determined that the ROE rate should be 11.55% based on the record established in a paper hearing on ROE established in an April 2008 order.

"The reason for including master limited partnerships [MLPs] in setting a proxy group is to assure an adequate sample for determining a pipeline's ROE and to obtain consistent regulatory results. The commission's role is to balance the interests of investors while protecting the ratepayer from excessive rates, and we have done so with this order," said FERC Chairman Joseph T. Kelliher.

FERC said the latest order also denied a request for rehearing, and rejected a contested settlement filed by Kern River, a subsidiary of MidAmerican Energy Holdings Co.

FERC said that the allowed ROE rate was set at the median of a proxy group which included both MLPs and corporations in a pipeline rate proceeding for the first time. Based on its analysis, it said it determined that the ROEs for the five firms selected for the proxy group yielded a range of reasonable returns at 8.8-13%, with an 11.55% median ROE.

It directed Kern River to cancel its interim rates filed with the settlement and made effective on Oct. 1, and to make a revised compliance filing using an 11.55% ROE within 45 days of the new order. FERC also directed the interstate natural gas pipeline company to recapture interim refunds at the earliest possible date as required by the settlement.

Contact Nick Snow at nicks@pennwell.com.

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