FERC Federal Energy Regulatory Commission : Issues Order Initiating an Investigation of Wyoming Interstate Company Pursuant to Section 5 of the NGA

158 FERC ¶ 61,040 UNITED STATES OF AMERICA‌

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Norman C. Bay, Chairman;

Cheryl A. LaFleur, and Colette D. Honorable.

Wyoming Interstate Company, L.L.C.

Docket No.

RP17-302-000

ORDER INSTITUTING INVESTIGATION AND SETTING MATTER FOR HEARING PURSUANT TO SECTION FIVE OF THE NATURAL GAS ACT‌

(Issued January 19, 2017)

1. As discussed in more detail below, based upon our review of publicly available information on file with the Commission, it appears that Wyoming Interstate Company,

   L.L.C. (WIC) may be substantially over-recovering its cost of service, causing WIC's existing rates to be unjust and unreasonable. Therefore, the Commission is initiating an investigation, pursuant to section 5 of the Natural Gas Act (NGA), to determine whether the rates currently charged by WIC are just and reasonable and setting the matter for hearing. The Commission directs WIC to file a full cost and revenue study, as modified in the order, within 75 days of the issuance of this order.

2. Background

3. WIC provides firm and interruptible natural gas transportation services through approximately 850 miles of pipeline. WIC is comprised of a mainline system that extends from western Wyoming to northeast Colorado (the Cheyenne Hub) and several lateral pipeline systems that extend from various interconnections along the WIC mainline into western Colorado and northeast Wyoming and into eastern Utah. WIC provides takeaway capacity from the Overthrust, Piceance, Uinta, Green River and Powder River Basins in Wyoming, Utah and Colorado. WIC, which is wholly owned by Kinder Morgan Inc., is operated by an affiliate, Colorado Interstate Gas Company, L.L.C.1

   1 General system information was gathered from FERC Form Nos. 2, 549B, and

   567.

4. On November 15, 2012, the Commission instituted a section 5 investigation into WIC's rates that resulted in a settlement2 approved on October 1, 2013.3 The 2013 Settlement provided for rate reductions to be effective January 1, 2014 and imposed a rate case moratorium on the pipeline until July 1, 2016.4 The 2013 Settlement also requires that WIC file a cost and revenue study on or before July 3, 2018 if no rate case or section 5 action has been initiated against the pipeline.5 WIC's rates have not been re- examined since the 2013 Settlement.
5. Discussion
7. In March 2008, the Commission issued Order No. 710,6 a final rule to change the forms and reporting requirements for interstate natural gas pipelines to enhance the transparency of financial reporting and better reflect current market and cost information relevant to interstate natural gas pipelines and their customers. The revised forms included FERC Form No. 2 (Form 2), the annual report for major natural gas companies, and FERC Form No. 3-Q (Form 3-Q), the quarterly financial report of natural gas companies, electric utilities, and licensees. The Commission stated that the revised forms and reporting requirements would provide, in greater detail, the information the Commission needs to carry out its responsibilities under the NGA to ensure just and reasonable rates. The Commission required major interstate pipelines to use the revised Form 2 for their annual reports beginning in calendar year 2008.

8. The Commission has reviewed the cost and revenue information provided by WIC in its Form 2 for the years 2014 and 2015. Based upon our review of this cost and revenue information, the Commission estimates WIC's return on equity for those calendar years to be 17.7 percent and 19.0 percent, respectively. Based upon these figures, the Commission is concerned that WIC's level of earnings may substantially

   2 Offer of Settlement of Wyoming Interstate Company, L.L.C., Docket No. RP13- 184-000 (June 24, 2013) (2013 Settlement). 3 Wyo. Interstate Co., L.L.C., 145 FERC ¶ 61,005 (2013). 4 See Settlement, Article IV. 5 See Settlement, Article III.

   6 Revisions to Forms, Statements, and Reporting Requirements for Natural Gas Pipelines, Order No. 710, FERC Stats. & Regs. ¶ 31,267 (2008), reh'g and clarification, Order No. 710-A, 123 FERC ¶ 61,278 (2008), remanded sub nom. Am. Gas Ass'n v.

   FERC, 593 F.3d 14 (D.C. Cir. 2010), order on remand, Order No. 710-B, 134 FERC

   ¶ 61,033, order on reh'g, Order No. 710-C, 136 FERC ¶ 61,109 (2011).

   exceed its actual cost of service, including a reasonable return on equity. A description of how the Commission arrived at these figures is set forth below.7

9. Based upon the information provided by WIC in its Form 2 for 2014, the Commission calculated WIC's 2014 cost of service to be $84.26 million excluding equity return and related income taxes.8 Next, the Commission compared this estimated cost of service to WIC's 2014 Form 2 reported revenues, as adjusted, of $150.34 million. The difference between WIC's reported adjusted revenues9 and the estimated cost of service is $66.08 million, before income taxes. After taking into consideration income taxes, WIC's equity return totals approximately $42.48 million for 2014. This equates to an estimated return on equity of 17.7 percent.

10. An identical analysis, based upon the cost and revenue information provided by WIC in its 2015 Form 2 generated a similar estimated return on equity. Based upon the information contained in WIC's Form 2 for 2015, the Commission calculated WIC's cost of service for 2015 to be $76.88 million, excluding of equity return and related income taxes. Next, the Commission compared this estimated cost of service to WIC's 2015 Form 2 reported revenues, as adjusted, which total $142.30 million. The difference between WIC's reported adjusted revenues and the estimated cost of service is $65.42 million, before income taxes. After taking into consideration income taxes, WIC's equity return totals approximately $42.06 million. This equates to an estimated return on equity of 19.0 percent.

    7 Details of the Commission's derivation of the return on equity are set forth in the Appendix to this order. The Appendix, where applicable, provides a page and line reference to WIC's Form 2s for 2015 and 2014 for each item utilized by the Commission in its calculations.

    8 Because WIC listed a 100 percent equity capitalization in its Form 2, we have used a hypothetical capital structure to calculate the pipelines cost of service. However, in this order, we make no finding as to what would constitute a just and reasonable capital structure for WIC. That is among the issues set for hearing in this order and should be decided consistent with the Commissions capital structure policies. See Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84 FERC ¶ 61,084, at 61,413-15, reh'g denied, Opinion No. 414-B, 85 FERC ¶ 61,323 (1998), petition for review denied sub nom. N.C. Utils. Comm'n v. FERC, D.C. Cir. Case No. 99-1037 (Feb. 7, 2000) (per curiam).

    9 As detailed in the Appendix, for purposes of this analysis, the total Other Revenues reflected in column (f) of page 301 of the Form 2 were adjusted to include annual charge adjustment (ACA) revenues.

11. The Commission finds that, based upon its preliminary analysis of the information provided by WIC in its Form 2s for the calendar years 2014 and 2015, WIC's currently effective tariff rates may be unjust and unreasonable. The Commission's analysis of this information indicates that WIC's currently effective tariff rates may allow WIC to recover revenue substantially in excess of its estimated cost of service. While NGA section 4 permits WIC to seek authorization from the Commission to adjust its rates to establish just and reasonable rates, WIC does not appear to have adjusted its system's rates since the October 2013 settlement, which included a rate reduction and a rate case moratorium through July 1, 2016. Accordingly, the Commission is initiating an investigation to examine the justness and reasonableness of WIC's rates pursuant to section 5 of the NGA and setting the matter for hearing.10

12. As the Commission has done in other cases initiating section 5 investigations of a pipeline's rates,11 it directs WIC to file a cost and revenue study based on cost and revenue information for the latest 12-month period available. The filing shall be made within 75 days of the date this order issues and include all the schedules required for

13. 10 In this order, we make no finding as to what would constitute a just and reasonable return on equity for WIC. That is among the issues set for hearing by this order and should be decided consistent with the Commission's 2008 policy statement, Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, 123 FERC ¶ 61,048 (2008).

    11 See Tuscarora Gas Transmission Co., 154 FERC ¶ 61,030 (2016); Iroquois Gas

    Transmission System, L.P., 154 FERC ¶ 61,028 (2016); Empire Pipeline, Inc., 154 FERC

    ¶ 61,029 (2016); Columbia Gulf Transmission, LLC, 154 FERC ¶ 61,027 (2016); Wyo. Interstate Co., L.L.C, 141 FERC ¶ 61,117 (2012) (WIC); Viking Gas Transmission Co., 141 FERC ¶ 61,118 (2012) (Viking); Bear Creek Storage Co. L.L.C., 137 FERC ¶ 61,134

    (2011), order denying reh'g, 138 FERC ¶ 61,019 (2012); MIGC LLC, 137 FERC

    ¶ 61,135 (2011), order denying reh'g, 138 FERC ¶ 61,011 (2012); ANR Storage Co.,

    137 FERC ¶ 61,136 (2011); Ozark Gas Transmission, LLC, 133 FERC ¶ 61,150 (2010),

    reh'g granted in part and denied in part, 134 FERC ¶ 61,062, reh'g granted in part and denied in part, 134 FERC ¶ 61,193 (2011) (Ozark); Kinder Morgan Interstate Gas Transmission LLC, 133 FERC ¶ 61,157 (2010), reh'g granted in part and denied in part, 134 FERC ¶ 61,061 (2011) (Kinder Morgan); Natural Gas Pipeline Co. of America LLC, 129 FERC ¶ 61,158 (2009), reh'g denied, 130 FERC ¶ 61,133 (2010) (Natural). As the Commission explained in the Natural rehearing order, "[s]ections 10(a) and 14(a) of the NGA authorize the Commission to require [the pipeline] to submit the information required by the [order instituting investigation] in order to carry out its responsibility under NGA section 5 to ensure that the pipeline's rates are just and reasonable." See Natural, 130 FERC ¶ 61,133 at P 16.