FERC Investigates Pipeline Rates; PHMSA Rejects INGAA Pleas

January 2011 Vol. 66 No. 1

The Federal Energy Regulatory Commission (FERC) is investigating the possibility that two interstate pipelines are charging unreasonable rates. The FERC opened mid-November investigations of Kinder Morgan Interstate Gas Transmission LLC and Ozark Gas Transmission LLC, a unit of Spectra Energy Partners LP., based on reviews of Form 2 cost of service and revenue information submitted by the two companies for 2008 and 2009.

None of the FERC commissioners gave any indication that they were beginning to look closely at pipeline rates more broadly, and that these two investigations were the front end of a longer string of upcoming cases. However, Chairman Jon Wellinghoff noted that the Kinder Morgan and Ozark investigations come one year after FERC initiated a Section 5 rate case against three interstate pipelines. "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 stated. FERC dropped the third case against MidAmerican Energy Holdings Co.’s Northern Natural Gas pipeline when public service commissions in Northern's service area argued consumers would be hurt if FERC acted against Northern.

Attorneys representing public service commissions in Arkansas and Missouri, who have indicated an interest in the proceeding, did not respond to inquiries about whether they supported or opposed a reduction in KMIGT and Ozark rates.

Kinder Morgan’s 5,100-mile system runs through Colorado, Wyoming, Kansas, Nebraska and Missouri. FERC calculated KMIGT's estimated return on equity for 2008 at 27.10 percent and 29.25 percent for 2009, inclusive of the dollar value of excess fuel retained by the company. When the dollar value of the excess fuel retained by the company is excluded, Kinder Morgan’s estimated return on equity for 2008 is 15.69 percent and 17.81 percent for 2009.

Ozark Gas Transmission owns and operates an estimated 565-mile interstate pipeline system in Arkansas, Missouri and Oklahoma. From Ozark’s 2008 and 2009 Form 2 reports, FERC staff calculated the company’s estimated return on equity, inclusive of revenues received from the sale of shipper-supplied gas, to be 27.81 percent for 2008 and 31.01percent for 2009. When the revenue from the sale of shipper-supplied gas is excluded, the Commission estimates the company’s return on equity to be 15.25 percent for 2008 and 25.63 percent for 2009.