FERC begins rate investigations of 2 pipelines: Update

Adds comment from Northern Natural Gas

The US Federal Energy Regulatory Commission (FERC) says it will investigate if two major natural gas pipelines that stretch from Texas to Michigan are charging their customers too much.

The investigations, launched yesterday, will look at whether the 6,009-mile Panhandle Eastern pipeline and the 14,700-mile Northern Natural Gas pipeline should be required to cut rates. The investigations stem from a wide-ranging agency effort to encourage pipelines to quickly adjust their rates to reflect savings from deep tax cuts that the US Congress enacted in 2017.

FERC chairman Neil Chatterjee said today that agency staff found the pipelines, along with a gas storage facility in western Louisiana named Bear Creek, may be "substantially overrecovering their cost of service." Northern is earning a 17.3pc return on equity and Panhandle may be earning returns in excess of 14.2pc, the agency said.

FERC began gathering financial data across the natural gas pipeline sector last year as part of a rule reviewing the industry's savings from the tax cuts. The rule set up a fast-track procedure for pipelines to voluntarily cut their rates, and warned companies it could use its so-called section 5 authority to investigate their rates if they were earning above a 12pc return on equity.

FERC said today that it was terminated further reviews into the rates of nine other gas pipelines. Three of those pipelines — Millennium, Vector and North Baja — last year voluntarily agreed to cut their tariff rates between 9.3-11pc. FERC is still reviewing financial information from more than 100 pipelines.

Panhandle, Northern Natural Gas and Bear Creek will have 75 days to file a study of their costs and revenues. FERC's order then requires one of the agency's administrative law judges to rule within 47 weeks on whether the rates should change. That timeline means pipeline rates might not change for more than a year.

Northern Natural Gas said it was surprised FERC ordered a rate review, which it said would "unnecessarily disrupt 15 years of rate stability between Northern and its customers." The company said from a financial perspective the investigation would be positive because it would accelerate when it seeks a rate increase for "significant investment" it made to modernize its system. Northern said its rate base is forecast to double from its last rate case in 2004.

Kinder Morgan, which owns the Bear Creek facility through its subsidiaries Tennessee Natural Gas and Southern Natural Gas, said it would comply with FERC's order. The company said any rate adjustments would flow to the customers of the two subsidiaries, but said the timing of that is uncertain.

Panhandle, a subsidiary of Energy Transfer Partners, did not respond for comment.