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FERC opens investigations into rates for 3 gas transportation, storage companies

The Federal Energy Regulatory Commission launched investigations and ordered hearings into the transportation or storage rates of three interstate natural gas companies to determine if the companies have been charging unreasonable rates.

FERC announced Jan. 16 that it is investigating Bear Creek Storage Co, Northern Natural Gas Co. and Panhandle Eastern Pipe Line Co. LP. The commission instructed each company to file a cost and revenue study for its latest 12-month period within 75 days of the order issuance. The proceedings will force the companies to come up with new cost-of-service rates, probably through a settlement. (FERC dockets RP19-51, RP19-59, and RP19-78)

At the commission's Jan. 17 monthly meeting, FERC Chairman Neil Chatterjee said he approved of the investigations under Section 5 of the Natural Gas Act. He also noted that the commission had terminated rate proceedings against nine other gas transportation companies after determining that no further action was needed.

The cited and ignored pipelines were all part of the first of three groups under scrutiny by FERC staff. The second group holds about 30 companies, and the third group holds about 70 companies. FERC typically has three or four Section 5 rate cases pending at any one time.

The investigations followed a July 2018 ruling from the commission requiring each interstate natural gas pipeline to file a one-time report, FERC Form 501-G, providing a rough estimate of its return on equity. Among other things, FERC required pipelines to show how a reduction in the corporate tax rate from 35% to 21%, part of a federal tax overhaul, affected their cost-of-service rates. The commission is concerned that the amount of earnings for the three companies under investigation may exceed their actual costs of services. The commission has not yet determined an appropriate ROE for each company.

"We believe that FERC chose this 'send a message' approach to try to achieve the largest customer savings with the fewest Section 5 investigations," energy analysts at Height Capital Markets said.

The Height analysts observed that the commission went after pipelines with prominent companies representing both C-corp and master limited partnership ownership, choosing to target these pipelines, even though their ROE was barely above the "normal" range, instead of smaller pipelines with high ROEs. Bear Creek is largely owned by Kinder Morgan Inc. companies, with some ownership shared by Southern Co. Northern Natural is owned by Berkshire Hathaway Energy Co. Panhandle Eastern is owned by Energy Transfer LP. The analysts also noted that in terminating rate proceedings against the other companies, FERC had dismissed most cases where the pipeline owners argued that the rate reporting process was inapplicable because their customers are on negotiated rates.

The nine companies dismissed from rate proceedings are: ETC Tiger Pipeline LLC, Gulfstream Natural Gas System LLC, Horizon Pipeline Co L.L.C., Millennium Pipeline Co. LLC, North Baja Pipeline LLC, Portland Natural Gas Transmission System LP, Vector Pipeline LP, White River Hub LLC and MIGC Inc.