Natural Gas Foul Play? FERC Aims to Find Out (BRK-A, TRP, KMP)

November 20, 2009 7:37 AM EST

The Federal Energy Regulatory Commission, or FERC, launched an investigation today of Natural Gas Pipeline Company of America LLC, Northern Natural Gas Co. and Great Lakes Gas Transmission L.P. to determine whether the companies are over-recovering costs, causing rates to be unjust and unreasonable. higher than what's allowed, the commission said.

“Protecting consumers against unjust and unreasonable rates is a fundamental responsibility of the Commission under the Natural Gas Act,” said FERC Chairman Jon Wellinghoff. “Launching these investigations is important to the Commission fulfilling that responsibility.”

The Northern Natural Gas system, which is made up of 15,141 miles of pipeline from Texas to the upper Midwest, is part of Berkshire Hathaway Inc.'s (NYSE: BRK-A) MidAmerican Energy Holdings Co. The Great Lakes system, which runs 2,100 miles in Minnesota, Wisconsin and Michigan, is an affiliate of TransCanada Corp (NYSE: TRP). Natural Gas Pipeline is a 9,700-mile system running from Texas and the U.S. Gulf of Mexico coast to Chicago, which Kinder Morgan Inc. (NYSE: KMP) operates.

Under FERC rules, any over-collection by pipelines isn't returned to companies that use them. The commission can take a variety of actions if a company is over-recovering, including resetting rates, a commission spokeswoman said.

The apparent over-collection is on what's known as the recourse rate, which is a basic rate established by regulators based on the cost of service.

Reasons of the investigations are as follows:

• Northern Natural Gas’ 15,141-mile system extends from the Permian Basin in Texas to the upper Midwest. Based on Northern’s 2008 reports, FERC staff calculated total adjusted 2008 revenue to be $726 million, which appears to yield an estimated earned return on equity of 24.36 percent, higher than that allowed by the Commission.
  
  
• Great Lakes’ 2,100-mile system transports natural gas through Minnesota, Wisconsin and Michigan. Based on Great Lakes’ 2008 reports, FERC staff calculated total adjusted 2008 revenue to be $290 million, which appears to yield an estimated earned return of 20.83 percent, higher than that allowed by the Commission.
  
  
• 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. From Natural’s 2008 reports, FERC staff calculated total adjusted 2008 revenue to be $656 million, which appears to yield an estimated earned return of 24.5 percent, higher than that allowed by the Commission.

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