Natural Gas Pipeline Probe Underway

By Tom Doggett

WASHINGTON, Nov 19 (Reuters) - The U.S. Federal Energy Regulatory Commission said on Thursday it was investigating whether three interstate natural gas pipelines are overcharging their customers.

The agency said it is looking at rates charged by privately held MidAmerican Energy Holdings Co's Northern Natural Gas Company, TransCanada Corp's (TRP.TO) Great Lakes Gas Transmission LP and Natural Gas Pipeline Company of America LLC, which is operated by privately held Kinder Morgan Inc.

FERC said the probe concerns whether the companies "are over-recovering costs, causing rates to be unjust and unreasonable."

"Protecting consumers against unjust and unreasonable rates is a fundamental responsibility of the commission," FERC Chairman Jon Wellinghoff said.

The rates allowed the pipelines to earn returns ranging from nearly 21 percent to almost 25 percent, higher than what FERC allows.

The commission ordered the investigation after FERC staff reviewed data submitted by the pipelines on their cost-of-service and revenue information.

The commission never approves rates of return above 20 percent, an agency spokeswoman said. The American Public Gas Association (APGA) said the normal return for pipelines is about 12 percent.

The APGA, which represents public gas systems, praised the FERC's crackdown on the pipelines.

"There is no public interest served in allowing pipelines to keep billions of dollars of consumer's money, especially in the current economic climate," the trade group said.

FERC ordered an administrative law judge to convene within 30 days a prehearing conference to clarify the positions of the pipeline companies and the agency and consider any procedural issues and discovery dates necessary for the hearing.

FERC said the alleged higher rates of return were as follows:

* Northern Natural Gas' 15,141-mile system extends from the Permian Basin in Texas to the upper Midwest. FERC staff calculated Northern's total adjusted 2008 revenue to be $726 million, which appears to yield an estimated earned return on equity of 24.36 percent.

* Great Lakes' 2,100-mile system transports natural gas through Minnesota, Wisconsin and Michigan. FERC staff calculated Great Lakes' total adjusted 2008 revenue to be $290 million, which appears to yield an estimated earned return of 20.83 percent.

* Natural Gas Pipeline's 9,700-mile system consists primarily of two interconnected transmission pipelines, the Amarillo and Gulf Coast lines, which terminate in Chicago. FERC staff calculated Natural Gas' total adjusted 2008 revenue to be $656 million, which appears to yield an estimated earned return of 24.5 percent.
FERC also said Natural Gas Pipeline appears to be over-recovering fuel and lost and unaccounted for gas from its customers.

FERC said its staff calculated an over-recovery of 30.9 million dekatherms of gas.

"Natural's reports also show that for the fourth quarter of 2008 and the first quarter of 2009, it received $59.6 million and $48.7 million, respectively, in revenues from the sale of excess gas," the agency said. (Reporting by Tom Doggett; Editing by David Gregorio)