The Federal Energy Regulatory Commission has surprised industry watchers by launching separate investigations into three interstate natural gas pipelines to determine whether they are overcharging customers by over-recovering costs, resulting in unjust and unreasonable rates.

In announcing the investigations on November 19, 2009, FERC ordered that a prehearing conference be convened within 30 days to clarify the positions of the companies—Northern Natural Gas Company, Great Lakes Gas Transmission LP, and Natural Gas Pipeline Company of America LLC—and to consider procedural issues and discovery dates.

The FERC action opens the door for shippers who use these pipelines to weigh in on rates and terms and conditions of service that are on the table. We believe it would be wise for them to do so. These cases will be precedent-setting, with the potential to affect pipeline rates industrywide. The deadline for intervening is December 18, 2009.

The commission is requiring these three pipelines to each file a full cost and revenue study within 45 days of its order. It has directed the Presiding Administrative Law Judge to issue an initial decision in the cases within 47 weeks. FERC Chairman Jon Wellinghoff cited FERC's inability to order refunds combined with the potential continued over-recovery of revenues as the impetus for acting quickly to resolve the cases.

Industry trade associations, such as the Process Gas Consumers Group (PGC), have repeatedly raised concerns over pipeline over-recoveries. This appears to be the first time in 20 years that FERC has used its Section 5 powers under the Natural Gas Act to initiate an investigation into the general rates of any specific pipeline. Chairman Wellinghoff’s remarks regarding the investigations seemed to indicate that FERC may ramp up its use of the revised Form 2 data as a replacement  for mandatory periodic rate review, which was eliminated by Order No. 636,  and that more Section 5 cases could follow.

FERC acted after a review by its staff of pipeline Form 2 cost of service and revenue information, including the more detailed information demanded by Order No. 710, issued in March 2008. The order aimed to make financial reporting by interstate natural gas pipelines more transparent and a better reflection of current market and cost information.

The Northern Natural Gas system runs 15,141 miles, from the Permian Basin in Texas to the upper Midwest. The Great Lakes system transports natural gas, along a 2,100-mile system, through Minnesota, Wisconsin, and Michigan. Two interconnected transmission pipelines primarily comprise Natural Gas Pipeline's 9,700-mile system, the Amarillo and Gulf Coast lines, which terminate in Chicago.

Ballard Spahr's Energy and Project Finance Group represents clients across the U.S. energy industry. Our attorneys keep up with developments in this rapidly changing arena, advising clients on all aspects of federal and state regulation. We assist them in achieving desired outcomes at FERC, DOE, NRC, and state utility commissions, where we have developed close working relationships. Members of our group also work with clients to achieve legislative and policy goals. For more information, please contact any member of the group.


Copyright © 2009 by Ballard Spahr LLP.
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