Pipeline & Gas Journal, November 2007
The Federal Energy Regulatory Commission (FERC) ignored
pleas from interstate pipelines and proceeded with a rulemaking
which, if finalized, will require transmission companies to report
more financial data to the commission on Form 2, which shippers
use as the basis of complaints about unfair pipeline rates.
The shipper community has argued that Form 2 information is
insufficient and now FERC has agreed with them.
The commissioners believe that the lack of data is preventing
some shippers from challenging pipeline rates, some of which have
not been reviewed in a decade. INGAA has pushed back, arguing
in its comments to a February notice of inquiry that shippers have
plenty of information available elsewhere outside Form 2. FERC
did not buy that argument. In its proposed rule issued in September,
FERC said, “We do not believe that users should have to piece
together and interpret from myriad sources information that is readily
available to the pipeline and can, without a substantial increase
in burden, be incorporated into Forms 2 and 2-A. Also, much of the
information cited by INGAA is not coterminous with Form 2 data
and cannot be used for purposes of comparison.”
The proposed rule would require, among other things, natural
gas companies to (1) submit additional revenue information,
including reporting revenue from shipper-supplied gas, (2) identify
the costs associated with affiliate transactions, and (3) provide
additional information on incremental facilities and discounted
and negotiated rates. The changes would be effective Jan. 1, 2008.
Accordingly, companies subject to the new requirements would
file their new Forms 2 and 2-A in 2009 for calendar year 2008.
“In my view, it is essential that public information suffice as
a foundation for a section 5 complaint,” said FERC Chairman
Joseph Kelliher on Sept. 20 in announcing the proposed rule.
However, FERC did not go nearly as far as some shippers
wanted it to go. The Commission rejected a request that
pipelines not using the rate of return on equity approved in the
pipeline’s last rate case provide the calculation and derivation
of the return used at present, as well as additional information
on capital structure used for ratemaking purposes.
But that may have been the only silver lining in the proposal
as far as the interstate pipelines are concerned. Elsewhere in the
proposed rule, FERC rubbed additional salt into their wounds
by deciding to open up a separate rulemaking designed to
explore a separate but related issue: the adequacy of information
reported in the Form No. 2 concerning gas retained, used
for compression, and lost and unaccounted-for.
Pipeline companies now have two options for recovering
these costs. The first is to establish a fixed-fuel retention percentage
in a general section 4 rate case and leave that percentage
unchanged until the pipeline files its next general section 4
rate case. The second allows the pipeline to include in its tariff
a mechanism permitting periodic changes in its fuel retention
percentage outside of a general section 4 rate case.
Pipeline customers have expressed concerns that in-kind gas
retained by pipelines for fuel and unaccounted-for gas requirements
is excessive and provides pipelines with significant profits. The
Commission’s review of information filed by pipelines in their 2005
Form 2 filings indicates that major pipelines appear to have retained
or carried over in their accounts a net sum of over 97 Bcf in fuel
beyond what was consumed, lost, or unaccounted-for. At average
2005 prices, this represents over $711 million in value.
The FERC seems to think that option one — the fixed fuel percentage
which accounted for the lion’s share of that $711 million
— is the potential problem. Moreover, it implied that pipelines are
claiming those excessive fuel costs when they could be reducing
their use of fuel by building new or revamping existing compressor
stations by taking actions such as minimizing pressure drops
and changing motors. The Commission floated the idea that if it
were to adopt incentive provisions to encourage pipelines to reduce
fuel use and lost and unaccounted-for gas, one option would be a mechanism for sharing between the pipeline and its shippers any
fuel cost recoveries and /or under-recoveries.