By Suzanne Herel

FERC on Thursday called for an investigation into four interstate natural gas pipelines that it believes might be charging shippers in PJM, ISO-NE, NYISO and CAISO too much.

The pipelines — Empire Pipeline (RP16-300-000), Iroquois Gas Transmission System (RP16-301-000), Columbia Gulf Transmission (RP16-302-000) and Tuscarora Gas Transmission (RP16-299-000) — have been ordered to file a cost and revenue study within 75 days and appear before an administrative law judge for evidentiary hearings.

The ’ earnings were flagged in a FERC review of annual reports filed by 129 pipeline companies for 2013 and 2014. The analysis found returns on equity for the four pipelines ranged from 15.8% (Empire, 2013) to 24.9% (Tuscarora, 2014). The industry average ROE is a little more than 12%.

“These estimated levels of returns led staff to believe that these four pipelines are over-recovering their costs of service and may be charging rates that are no longer just and reasonable,” James Sarikas, of FERC’s Office of Energy Market Regulation, said in a presentation to the commission. “In addition, none of these pipelines have an existing settlement with its customers that places a currently effective moratorium on existing rates, or requires it to file a new general [Natural Gas Act] Section 4 rate case in the future.”

First Probes Since 2013

The probes are the first in two years to be conducted under Section 5 of the NGA, designed to protect consumers from excessive rates and charges.

FERC in 2009 began a regular, in-depth review of the cost and revenue information filed by large pipelines and in 2011 expanded its focus to include smaller operations.

In that time, the commission initiated 10 proceedings to determine if the pipelines’ transportation and storage rates might not be just and reasonable. Eight of those investigations ended in settlement agreements, and two were terminated.

Dena Wiggins, president of the Natural Gas Supply Association, which represents gas producers and marketers, said her group was pleased that FERC had opened the investigations, adding that they underscore a need for revisions to Section 5.

“Legislation that reforms Section 5, granting FERC the authority to award refunds to shippers in cases where pipelines are determined to have overcharged, would further enhance consumer protections, since currently FERC can only order an overearning pipeline to lower its rates going forward from the date of the commission’s order,” she said in a statement. “Now that FERC has adopted a new modernization surcharge policy that grants interstate pipelines new opportunities to recover costs outside of a general rate case, Section 5 reform is more important than ever.”

Pipelines Span the Country

FERC’s orders outlined their concerns over the companies’ earnings:

• Empire, an affiliate of National Fuel Gas, received authorization in 2011 to construct the Tioga County Extension Project, which enables it to transport natural gas south from Canada and product from the Marcellus shale north from Pennsylvania. It had not filed a rate case since 2006. The commission’s review found Empire earned $24.6 million after income taxes in 2013, an ROE of 15.8%, and $28.6 million (20.2%) the following year.
• Iroquois, which owns pipelines from the Canadian border through New York and western Connecticut, has not adjusted its rates since 2004. FERC said it had an after-tax return of $54 million (16.2%) in 2013 and $55.6 million (16.3%) in 2014.
• Columbia Gulf operates about 3,400 miles of pipeline located primarily in Louisiana, Mississippi, Tennessee and Kentucky. Its current rates are the result of a 2011 settlement agreement, which barred it from seeking to modify rates before April 1, 2014. The company earned $21.9 million (17.3%) for 2013 and $26.4 million (18.2%) for 2014.
• Tuscarora, which operates a 229-mile pipeline in Nevada and northwestern California, had not had a rate examination since a 2012 settlement with the Nevada Public Utilities Commission. FERC’s review indicated earnings of $9.7 million (23.6%) for 2013 and $9.6 million (24.9%) for 2014.