By Joel L. Greene
Tuesday, March 19, 2013
SENATE ENERGY INQUIRES INTO NATURE OF FERC’S SECTION 5 NATURAL GAS ACT (NGA) INVESTIGATIONS
By Joel L. Greene
Over the last few years, various natural gas ratepayer groups have without success mounted a legislative effort to stop natural gas pipeline companies from over-recovering their costs. As discussed below, Capitol Hill may finally be listening.
In 2012, the Natural Gas Supply Association released its annual study analyzing the cost recovery over a five-year period of 32 major pipelines representing 80 percent of the transportation market. Based on pipeline data filed with the Federal Energy Regulatory Commission (FERC), the study concluded that for the period 2006-2010 pipelines over-recovered their costs by approximately $14.2 billion. According to the American Public Gas Association, which has been among those championing the need for rate reform, the margin of over-recovery has increased from $3.7 billion (2009 report), to $4.1 billion (2010 and 2011 reports), to $4.2 billion (2012 report). 
The reason for this untenable situation is according to APGA, very straightforward:
…under NGA Section 5, the FERC does not have the refund authority to effectively restrain pipeline over-recovery. This was also the situation under the complaint section of the Federal Power Act (Section 206) until 1988, when Congress took stock of the situation and amended FPA Section 206 to give FERC the authority to order refunds from and after the date a complaint was filed. Thus, under FPA Section 206 if FERC finds that an electric transmission provider overcharged customers beyond a “just and reasonable” rate, the FERC may refund the overcharges incurred from and after the date of the complaint to its customers. Natural gas customers, however, do not have the same protection under the NGA for FERC to provide any reimbursement to overcharged gas transportation customers.
Of course, until 1992 pipelines were required to restate and undergo FERC scrutiny of their rates every three years, so gas consumers could be assured of a forum in which FERC would determine if the rates were still just and reasonable. However, with the issuance of Order 636 and the introduction of unbundled open access, FERC terminated the three-year rate review process. As a result, absent a mandatory come-back provision in a rate settlement, pipeline companies whose costs may have decreased to a level that no longer renders their rates just and reasonable, are under no obligation to have their rates evaluated.
Numerous organizations have taken up the “need for parity” gauntlet alongside APGA, including the American Forest & Paper Association, American Public Power Association, Industrial Energy Consumers of America, Northern Municipal Distributors Group, and Process Gas Consumers Group, among others. Their call for reform has also been included in pleadings filed in the Section 5 investigation dockets before FERC. They have not fallen on deaf ears, but as recognized by Chairman Wellinghoff, require a legislative fix:
As a general matter, the lack of refund authority under section 5 of the NGA allows the regulated community to defeat the purpose of section 5 at least in some circumstances. This is not the case under the Federal Power Act (FPA). The Commission must establish a refund effective date for a section 206 proceeding and has the authority to order refunds for the period ending 15 months after the refund effective date. Thus, the incentive for game-playing is removed and the Commission can determine on the merits that a public utility’s rates are just and reasonable. For this reason, I support legislative changes providing for NGA refund authority paralleling that provided to the Commission in the FPA.
Now it appears that consumers’ voices are being heard. On March 6, 2013, the Chairman and ranking Republican of the Senate Committee on Energy and Natural Resources formally requested that FERC provide background information on the 10 Section 5 NGA rate investigations initiated by FERC (including one initiated by third party complaint) since 2009. The letter requests that for each proceeding the FERC specify the original FERC-approved rate of return and whether the pipeline companies offered any discounts for its services. A brief description of and timeline for each section 5 proceeding was also requested, including the manner of resolution, and any changes in rates for the various customer classes resulting from the proceeding, if any. Finally, FERC was asked to provide the Committee with information on the rules and procedures describing who may challenge pipeline rates, including FERC, and whether FERC has the authority under the NGA or any other applicable law, to require pipelines to periodically show cause that their rates are just and reasonable.
 Letter from Bert Kalisch, President & CEO, American Public Gas Association, to Honorable Jeff Bingaman, Chairman, Committee on Energy and Natural Resources (April 18, 2012) at pg. 1. http://www.apga.org/files/public/federal%20filings/2%207%2013%20APGA%20Testimony%20on%20Section%205%20and%20LNG%20Exports%20%20FINAL.pdf
 Id. at pg. 2. See also, Testimony of the American Public Gas Association before the Senate Committee on Energy and Natural Resources Hearing “Opportunities and Challenges for Natural Gas (Feb. 12, 2013) (demonstrating why reform of Section 5 is an issue critical for U.S. consumers of natural gas) (hereinafter “Feb. 12 Testimony”)
 See Joint Letter to Honorable Maria Cantwell, U.S. Senator (May 24, 2012). http://www.apga.org/files/public/correspondence/5%2024%2012%20Coalition%20Letter%20to%20Cantwell%20re-Section%205.pdf
 Chairman Wellinghoff’s dissenting statement (p.4) in Northern Natural Gas Co., RP10-148, issued Nov. 2, 2010. In its Feb. 12 Testimony, APGA reported that all of the sitting commissioners “being fully familiar with the outcomes in these Section 5 proceedings, have stated their support for amendment of NGA Section 5 to provide refund authority comparable to that available under FPA Section 206.”