The Federal Energy Regulatory Commission on Oct. 17 declined to pursue probes into the natural gas transportation rates of Natural Gas Pipeline Co. of America LLC and Wyoming Interstate Co. LLC.
The FERC majority said it did not want to disturb uncontested rate settlements. The commission let rates set by the settlements stay in effect in two orders that terminated its review of forms that it had required natural gas pipelines to file. The forms helped the commission determine whether the pipelines were collecting unreasonable rates in light of corporate income tax reductions and FERC's revised policy on tax allowances.
The orders drew objections at the commission's Oct. 17 open meeting from Democratic Commissioner Richard Glick. In a dissent, Glick said the records showed that NGPL and Wyoming Interstate are now earning returns on equity on the order of 20% — "a number far outside the zone of reasonableness established in the most recent fully litigated rate case under the Natural Gas Act."
Glick said the returns, 23.5% in the case of Natural Gas Pipeline Co., or NGPL, and 19.2% for Wyoming Interstate, suggested "that the pipelines' rates may well be unjust and unreasonable, and it should have been a more-than-sufficient basis to institute" a rate probe under Natural Gas Act Section 5.
During the meeting, Glick said FERC was "allowing for a windfall" in the orders. "We're not passing through like we promised back at the end of 2017 that we were going to pass through the benefits [of the tax cuts] to consumers," he said. The federal tax overhaul lowered the corporate income tax rate to 21% from 35%.
FERC Chairman Neil Chatterjee and Commissioner Bernard McNamee cited a respect for rate settlements as the reason they backed the decisions.
It is important to recognize that settlements cover multiple issues and that "these are sophisticated parties that enter into the settlements," McNamee said at the meeting.
FERC's order on NGPL cited a rate moratorium that extends until July 1, 2022, a commitment to file a cost and revenue study by June 1, 2021, and a promise to spend $400 million over five years on pipeline integrity-related activities.
"We determine that the rate moratorium in Natural's 2018 settlement applies to any action we might consider taking in this proceeding with respect to Natural's FERC Form 501-G, and therefore we decline to disturb the bargain struck by parties in the uncontested settlement," the FERC order said. (FERC docket RP19-395)
NGPL's settlement also included a phased-in 6.5% cut in maximum recourse reservation rates that were in effect as of April 2017.
Melissa Ruiz, a spokeswoman for Kinder Morgan Inc., the parent of both pipelines, said the company was expecting the decision and is pleased FERC was respecting the settlement and "happy to have it behind us now."
Ruiz noted that the settlement was approved Jan. 5, 2018, after passage of the tax cuts. "NGPL's settlement was negotiated with all participants with the explicit recognition of potential congressional action on tax reform," Ruiz said in an email.
For Wyoming Interstate, FERC also made statements about not disturbing a settlement that included commitments to adhere to a rate moratorium until Jan. 1, 2021, and to file a Natural Gas Act Section 4 rate case with rates effective not later than April 1, 2022. (FERC docket RP19-420)
For both pipelines, FERC noted that the settlements reserved the issue of rate adjustments to reflect the corporate tax cut only in the event that the commission mandates an industrywide requirement.
Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.