Pipelines too profitable?

The Federal Energy Regulatory Commission said it is investigating whether three interstate natural gas pipelines are overcharging their customers — including Kinder Morgan’s Natural Gas Pipeline Company of America .
The probe is over whether the companies “are over-recovering costs, causing rates to be unjust and unreasonable.” FERC says the pipelines appeared to earn returns ranging from nearly 21 percent to almost 25 percent, which is much higher than what FERC normally allows. A return rate of about 12 percent is typical.
They also claim NGPL was “over-recovering fuel use gas from its customers, and that in the fourth quarter of 2008 and the first quarter of 2009 alone, the pipeline received revenues of $59.6 million and $48.7 million, respectively, from the sale of excess retained gas quantities.
The other pipelines are MidAmerican Energy’s Northern Natural Gas Co. and TransCanada’s Great Lakes Gas Transmission.
The folks at Tudor Pickering sum up the issues very well, noting that since 1992 interstate pipelines have not had to formally file rate cases, but rather FERC has relied on pipeline customers to come to them with complaints if they thought pipes were over-earning/they were being overcharged. Most of those complaints didn’t come to a full hearing, however, because the parties normally settled.
“NGPL has been widely thought to be significantly over-earning” Tudor Pickering notes while most other pipelines have been below 20 percent. That 20 percent seems to have been the threshold as which FERC took notice, chosing to turn a blind eye to everything else.
What does this mean for the industry?

Disturbing and part of what seems to be an “in your face” regulatory movement in DC. In 2008, the FERC revised the Form 2 filing process, requiring more information from pipelines with an objective toward more transparency. Now they use that compliance against them when the pipes probably assumed the FERC would continue to let market forces work. When pipes agreed to order 636 in 1992, part of the give back was that they would not have to be called back in for rate cases. So much for that. Big Brother is watching!