FERC Institutes Two More Investigations into Possible Pipeline Over-Recoveries of Cost of Service

 

By Joel L. Greene

 

On November 15, 2012, the Federal Energy Regulatory Commission (“FERC”) initiated separate investigations, pursuant to its Section 5 authority under the Natural Gas Act, to determine whether the rates currently charged by Viking Gas Transmission Company and Wyoming Interstate Company, LLC (“WIC”) are just and reasonable. These orders follow eight previous Section 5 pipeline rate investigations FERC has instituted since 2009.  As in the prior cases, Viking and WIC were directed to file a full cost and revenue study within 75 days of the issuance of their respective order (due January 29, 2013), which will provide a baseline of actual annual costs and revenues and starting point for further analysis. Motions to intervene by affected parties are due by December 17.  Presiding Judges have already been assigned to conduct hearings on a Track II Hearing Timeline.

In Viking’s case, FERC stated that the company’s current rates were established as part of a FERC-approved settlement on November 8, 2002, and that the settlement did not require Viking to file a new rate case at any time in the future.  Viking has not filed a general NGA section 4 rate case in the 10 years since the 2002 settlement.  Having reviewed Viking’s cost and revenue information for the years 2010 and 2011, FERC estimates that the company’s return on equity for those calendar years is 21.39 percent and 21.75 percent, respectively. This concern precipitated the investigation and the need for a hearing to determine whether Viking’s level of earnings is substantially in excess of actual cost of service, including a reasonable return on equity.

Similarly, WIC’s current rates were established as part of a settlement approved on September 27, 2000, with no obligation on the part of WIC to file a new rate case at any time in the future, and with no general Section 4 filing made in the past twelve years.  FERC’s review of WIC’s cost and revenue information for the years 2010 and 2011 resulted in estimated returns on equity for those two calendar years to be 19.55 percent, and 18.51 percent, respectively.

Interestingly, none of the Section 5 rate investigations instituted by FERC since November, 2009 has proceeded to a full evidentiary hearing and decision.  Rather, all have resulted in case-specific uncontested settlements approved by FERC, with the exception of one case (MIGC LLC) that was terminated by the Presiding Judge based on changed circumstances raised on motion by FERC Trial Staff.  It is too early to tell how the Viking and WIC cases will evolve.