Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

FERC's GulfTerra Orders: Chnages in the Pipeline

A new FERC decision veers away from congressional intent not to burden intrastate pipelines with interstate policies.
Fortnightly Magazine - May 2004
  • risk, FERC says that its interstate pipeline risk analysis presumes, absent highly unusual circumstances indicating anomalously high or low risk, that pipelines fall into a broad range of average risk. Without considering any risk differences between interstate and intrastate markets, FERC uses such analysis to derive GulfTerra's NGPA intrastate pipeline cost of service.
  • Depreciation rate records inadequate. FERC rejects GulfTerra's proposed cost-of-service depreciation rate levels for gathering (4 percent), transmission (2.5 percent), and general plant (14.29 percent). FERC finds inadequate GulfTerra's response to a staff data request for the basis of the depreciation rates proposal and faults GulfTerra for neither providing life-of-reserves studies to design the gathering rate, nor breaking down different general plant categories. To correct that paucity of record information, FERC orders GulfTerra to turn to its Texas regulatory history and use the last RRC-approved intrastate depreciation rates for its NGPA interstate ratemaking in this case. FERC maintained those depreciation rulings on rehearing. 12
  • Donations treated uncharitably. Following NGA interstate pipeline policy that charitable donations cannot be included in cost of service, 13 and thus removing $22,734 annually, a FERC majority rejects GulfTerra's argument that FERC should apply Texas's rule allowing recovery of charitable donations in cost of service. Stating that their reasoning is more important than the mere fact that a state agency did or did not come to a certain policy decision, FERC's majority holds that such contributions do not constitute a valid operating cost in offering interstate service. FERC applies its holding equally to all pipelines, interstate or intrastate, offering service subject to FERC jurisdiction. FERC also declares its respect for state regulation and does not conclude that state regulators should follow its lead ("We will not vary our policy depending on where the pipeline is located. [However,] ... we take no position on whether charitable donations should be allowed in the cost of service for purposes of intrastate service ratemaking.") 14 The FERC commissioner dissenting from such "unnecessarily harsh ... systematic exclusion … without regard to any possible ratepayer benefit" either would have allowed the charitable costs or at a minimum would have conducted a ratepayer benefit analysis. 15
    The GulfTerra orders also set precedents on certain rate design issues thus: 16
  • State gathering rates apart from transmission rates. Rejecting both GulfTerra's inclusion of gathering costs in its transportation cost of service, and GulfTerra's statement that Texas law does not require the gathering service rate to be stated separately, FERC requires GulfTerra prospectively to conform to interstate pipeline policy favoring separately stated gathering and transmission rates. The NGA interstate concern, which FERC unhesitatingly applies also to NGPA intrastate pipelines performing interstate service, 17 is that a pipeline including gathering costs in transportation rates unfairly disadvantages those customers desiring to purchase gas off-system because such customers need only a separate transmission service rate, not the gathering rate as well. FERC also does not want to inhibit market center transmission service development. Denying rehearing to GulfTerra, FERC continued to emphasize its pro-competitive goals to allow shippers to choose and pay for only those services they want, and to