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FERC should avoid a one size fits all approach to pipeline rates, INGAA says

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World Pipelines,

INGAA President and Chief Executive Officer Don Santa called on the Federal Energy Regulatory Commission to deny petitions filed by several trade associations and corporations that seek to require all FERC-regulated pipelines to lower natural gas pipeline transportation rates to reflect only recent corporate income tax cuts without consideration of offsetting cost increases. INGAA requests that FERC reject a ‘one size fits all’ approach that ignores the specific facts, market conditions and overall costs and revenues associated with each pipeline.

In a 30 January letter to FERC Chairman Kevin McIntyre, Santa called the petitions contrary to both FERC policy favouring full rate proceedings and the law governing the freely negotiated agreements that establish the rates of many interstate pipelines. If granted, the petitions would compel FERC to open settlement agreements that may have rate moratoriums and to assign values to the cost components of black-box settlements.

Santa explained that FERC determines whether an overall rate is just and reasonable, not any individual component of the rate. If FERC were to grant the petitions and “issue a generic order compelling pipelines to adjust an individual component of their respective recourse rates,” Santa said it would not yield a just and reasonable result in many cases due to offsetting cost increases and possible changes in a pipeline’s overall contract portfolio.

Due in part to 30 years of FERC-enacted policies to foster competitive markets for pipeline transportation, many pipelines offer both discounted and below maximum negotiated transmission and storage service rates in the competitive market.

“Customers receiving service under negotiated or discounted rates likely are not bearing the full costs of income taxes (or any other cost of service component) and will not necessarily benefit from any reduction to recourse rates,” Santa explained. “The market conditions faced by interstate natural gas pipelines are in stark contrast to the situation of state regulated utilities with franchised service territories that typically are able to collect their maximum rates and pass through costs in routine rate cases.”

The petitions also disregard how the normalisation rules of the Internal Revenue Code relate to any alleged excess accumulated deferred income tax balances maintained by interstate pipelines, Santa said.

Initiating a show cause proceeding affecting all pipelines will not result in a prompt, equitable and administratively efficient resolution of this matter or necessarily result in rate reductions of the magnitude speculated by the petitioners. Santa noted that the requests are not self-executing and that FERC has the discretion to reject them if it finds that no changes are necessary. Section 5 of the Natural Gas Act requires the commission to follow well-established procedures, including conducting a hearing, before it can order any potential reductions to pipeline rates.

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