PHMSA Assesses Big Safety Penalty Against El Paso

January 2010 Vol. 65 No. 1

Keith M. Sappenfield II, director, U.S. regulatory affairs, midstream and marketing EnCana Oil & Gas (USA) Inc., says this is the first time FERC has opened a Section 5 (under the Natural Gas Act) rate case on its own. EnCana has shipped on all three lines at one time or another, and has intervened in each of the three rate cases. Sappenfield explains that shippers typically file these Section 5 rate cases, and pay the attendant costs, which can be substantial, which acts as a deterrent to their being filed by shippers unhappy about pipeline rates. Pipelines themselves can file Section 4 rate cases when they want an adjustment to their rates.

FERC's investigation of the three companies resulted from a staff review of pipeline Form 2 cost of service and revenue information, including more detailed information required by Order No. 710, issued in March 2008. “Protecting consumers against unjust and unreasonable rates is a fundamental responsibility of the commission under the Natural Gas Act,” says FERC Chairman Jon Wellinghoff. “Launching these investigations is important to the commission fulfilling that responsibility.”

In announcing the investigation, FERC said the three pipelines, based on the Form 2 data, appeared to have estimated earned returns on equity of above 20 percent. FERC typically allows returns in the area of 12 14 percent. Sappenfield notes that should those 20 plus percent returns turn out to be accurate after the commission looks at company data, and should FERC knock down those rates to the 12 14 percent vicinity, many other interstate pipelines may also be headed toward FERC initiated Section 5 rate cases because many of them are at the 18 19 percent level, according to Sappenfield.

Mark Hewett, president of Northern Natural Gas Company, blasted the investigation in highly acerbic terms. In a teleconference with customers on Nov. 24, he called the FERC basis for the order "fundamentally flawed." He added, "I believe the FERC’s inflammatory determinations, which were paraded in the press for political gain, were based on a snapshot of incomplete data and are entirely inappropriate." Hewett argued that Northern's last rate case was in November 2006 while Natural Gas Pipeline and Great Lakes Gas Transmission have not been in a rate proceeding for 14 years and 18 years, respectively. He added Northern's customers have the lowest transportation rates in the upper Midwest.