Last month
we informed you that the Federal Energy Regulatory Commission (“FERC”) had received
initial comments on its proposed
policy to allow interstate pipelines to recover the costs of modernizing their
facilities through a cost tracker. On February 26th, FERC received reply
comments.
While the
initial comments elicited many responses from both supporters and protestors of
the proposed policy, the reply comments primarily reflected the views of those
who opposed it. These comments focused on three major issues: (1) the uncertain
nature of the Environmental Protection Agency (“EPA”) and Pipeline and Hazardous Materials
Safety Administration (“PHMSA”) regulations; (2) the need for a
rate case under Section 4 of the Natural Gas Act, 15 U.S.C. § 717c; and (3)
whether FERC should adopt a broad or narrow definition of the “Eligible
Facilities” costs that the pipeline may recover.
EPA and PHMSA Regulations
Both the
Indicated Shippers and the Process Gas Consumers Group and the American Forest
and Paper Association (“Joint Reply Commenters”) argued that none of the
supporting comments offered any evidence as to why the pipelines need an
incentive to comply with the EPA and PHMSA regulations. See Reply Comments of the Indicated Shippers; see also Reply Comments of The Process Gas Consumers Group and
American Forest and Paper Association. The Indicated Shippers argued that
pipelines routinely face compliance costs and EPA and PHMSA compliance costs
are no different. The Indicated Shippers then pointed out that no party has
disputed that the EPA and PHMSA have not implemented any regulations and that
there is considerable uncertainty about the effects of these potential
regulations. The Natural Gas Supply Association (“NGSA”) requested that FERC
refrain from issuing any order in this proceeding until the EPA and PHMSA
actually issue any regulations. See Reply
Comments of the Natural Gas Supply Association and Request for Technical
Conference.
Section 4 Rate
Cases
Reiterating
points made in their initial comments, the Indicated Shippers, NGSA, and the
Joint Reply Commenters argued that the tracker would contravene the need for
traditional Section 4 rate cases. The Indicated Shippers argued that without a
rate case, pipeline rates would gradually inflate as pipelines included new
costs in the tracker without prior FERC review. The NGSA argued that pipelines
have exaggerated the risk of pancaked rates, because pipelines “generally try
to avoid filing Section 4 rate cases” anyway.
The Definition of Eligible Facilities
The major disagreement between the pipelines
and the shippers has been over the definition of “Eligible Facilities.” FERC
proposed to limit costs recovered through the tracker to “one-time capital
costs to modify the pipeline’s existing system to comply with safety and
environmental regulations such as those being considered by PHMSA and by the
EPA, as well as other capital costs shown to be necessary for the safe or
efficient operation of the pipeline.”
The Indicated Shippers stated that such a
broad definition would eliminate the need for a Section 4 proceeding. Instead
of filing a Section 4 rate case, pipelines would just include any voluntarily
incurred upgrade costs into the tracker. The NGSA argued that eligible costs
should be one-time, mandatory costs incurred to comply with PHMSA and EPA
regulations, while the Joint Reply Commenters added that Eligible Facilities
should not include the costs of undefined projects. The Joint Reply Commenters
recommended that the Commission revisit the definition of Eligible Facilities
at a technical conference after the EPA and PHMSA have issued their
regulations.
In contrast, Berkshire Hathaway, one of the few reply commenters
that supported the proposal, argued that the disagreement over the definition
of Eligible Facilities is the exact reason why FERC should adopt a broad
definition of Eligible Facilities. See Reply
Comments of Berkshire Hathaway Energy Company on Notice of Proposed Policy
Statement. Berkshire Hathaway reasoned that a broad definition would permit
pipelines and shippers to collaborate on what costs the pipeline should
recover.
These reply comments present
difficult questions for the Commission. Does it move forward with the proposed
policy now, or await EPA and PHMSA’s release of their regulations? When FERC
does move forward, will it adopt a broad or narrow definition of Eligible
Facilities? If you have questions or would like more information on the issues
discussed in this article, please feel free to contact
us.
