FERC issues first return-on-equity order including MLPs in proxy group

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

Jan 23rd, 2009

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

The commission found that the 12.5% ROE was excessive and would result in unjust and unreasonable rates. It determined that Kern River's ROE rate should be 11.55%.

"The reason for including master limited partnerships 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," FERC Chairman Joseph T. Kelliher said.

The latest order addressed a paper hearing on ROE established in an April 2008 order, denied a request for rehearing, and rejected a contested settlement filed by Kern River, a subsidiary of MidAmerican Energy Holdings Co., according to FERC.

It said that it could not approve Kern River's contested rate settlement because its imbedded ROE was too high. Instead, it established the 11.55% ROE rate based on the record established in the paper hearing.

FERC said that this 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 that it determined that the ROEs for the five firms selected for the proxy group yielded a range of reasonable returns from 8.8% to 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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