FERC rolls out new cost recovery policy for natural gas pipelines

The Federal Energy Regulatory Commission (FERC) has authorized a new policy statement that allows interstate natural gas pipelines to seek to recover through a surcharge mechanism certain capital expenditures made to modernize pipeline system infrastructure.

The qualifying infrastructure upgrades must be done in a manner that enhances system reliability, safety and regulatory compliance, FERC said in an April 16 news release.

The policy statement takes effect Oct. 1. A representative of the Interstate Natural Gas Association of America (INGAA) said the organization is still reviewing the 90-page policy statement.

The policy is implemented as a result of regulatory reforms by the U.S. Pipeline and Hazardous Materials Safety Administration that likely will require interstate natural gas pipelines to make significant capital cost expenditures to enhance the safety and reliability of their systems.

Also, recent Environmental Protection Agency (EPA) initiatives may increase pipelines’ environmental monitoring and compliance costs, and require them to replace or repair existing compressors and other facilities.

The policy establishes guidance and a framework as to how FERC will evaluate pipelines’ proposals for recovering costs associated with replacing old and inefficient compressors or leak-prone pipelines and for performing other infrastructure improvements and upgrades.

The policy statement adopts the standards proposed in FERC’s November 2014 proposed policy statement. FERC will evaluate on a case-specific basis any proposal for a modernization cost surcharge subject to five guiding standards intended to ensure that the resulting rates are just and reasonable and protect natural gas consumers from excessive costs.

Case-specific evaluation would be made on five factors

These five criteria are based on principles outlined in a January 2013 FERC order that allowed Columbia Gas Transmission to implement a similar tracker:

•The pipeline’s base rates must have been recently reviewed through a Natural Gas Act general section 4 rate proceeding, a cost and revenue study, or through a collaborative effort between the pipeline and its customers;

•Eligible costs must generally be limited to one-time capital costs incurred to meet safety or environmental regulations or other capital costs shown to be necessary for the safe, reliable, and/or efficient operation of the pipeline, and the pipeline must specifically identify each capital investment to be recovered by the surcharge.

•Captive customers must be protected from cost shifts if the pipeline loses shippers or increases discounts to retain business;

•The pipeline must include some method to allow a periodic FERC review to ensure rates remain just and reasonable; and

•The pipeline must work collaboratively with shippers to seek their support for any surcharge proposal.


About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.