Underground Construction - March 2018 - 10

WASHINGTONWATCH
INGAA Tries to Ward Off
Attempt to Force Rate Cuts

I

Interstate gas pipelines are trying to
convince the Federal Energy Regulatory Commission (FERC) to ignore
pleas from gas producers and other
shippers to cut the rates pipelines
charge their customers to reflect
lower tax rates enacted by the Tax
Cuts and Jobs Act of 2017.
A number of gas shippers and
producers such as Anadarko Energy Services Company, Chevron
U.S.A. Inc., ConocoPhillips Company and others petitioned the FERC
in January to initiate show-cause
proceedings against all interstate
natural gas pipelines and their storage businesses for their upcoming
rate cases. The proceedings would
force the pipelines to demonstrate
that their existing jurisdictional
rates continue to be "just and
reasonable" following the passage
of the new tax law. The petitioners
want FERC to order an immediate rate reduction, based upon
the Commission's calculations,
if a filed cost and revenue study
demonstrates that revenues from
services offered on the interstate
natural gas pipeline or storage
company's system exceed the
costs, following adjustments to
account for changes implemented
under the new tax cut law.
When pipelines file rate cases,
they include their income tax payments as one of their expenses in
arguing for rates that are "just and
reasonable." Section 13001 of the
Tax Act reduced the tax imposed
on corporations from as high as 35
percent, to a flat rate of 21 percent;
and for owners of partnerships and
other pass-through entities from as
high as 39 percent, to 20 percent.
The Tax Act also eliminated the
alternative minimum tax for
corporations.
In a Jan. 30 letter to FERC
Chairman Kevin McIntyre, INGAA

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MARCH 2018 | UConOnline.com

CEO Donald Santa called the joint
petition and separate petitions filed
by some of the parties contrary
to both FERC policy favoring
full-rate proceedings, and the law
governing the freely negotiated
agreements that establish the
rates of many interstate pipelines.
If granted, the petitions would
compel FERC to open settlement
agreements that may have rate
moratoriums and to assign values
to the cost components of blackbox settlements.
Santa explained that FERC
determines whether an overall
rate is just and reasonable, not
any individual component of the
rate. If FERC were to grant the
petitions and "issue a generic order
compelling pipelines to adjust
an individual component of their
respective recourse rates," Santa
said it would not yield a just and
reasonable result in many cases,
due to offsetting cost increases
and possible changes in a pipeline's overall contract portfolio.
The petitioners want FERC to
direct the pipelines and storage
companies to do the following:
* Use the most recently available,
12-month, cost and revenue
data.
* Adjust the income tax allowance to take into account the
changes implemented under
the new tax law, including the
impact of the lower rate on the
income tax allowance, as well
as reducing and refunding the
Accumulated Deferred Income
Tax account.
* Indicate the rate of return/capital structure assumptions.
* Indicate the cost allocation and
rate design methodologies that
underlie the existing rates.
* Include a derivation of the per
unit rates.

Stephen Barlas | Washington Editor

FERC Examines Adequacy
of Emergency Gas
Supplies
New concerns about the adequacy
of natural gas infrastructure came
to the fore this winter as a result of
the "bomb cyclone" cold-weather
event reinforcing the urgency of
the FERC's Jan. 8, 2018, order on
grid reliability. In issuing that order,
FERC terminated its consideration
of a proposal from Energy Secretary Rick Perry that FERC subsidize
energy generators using coal and
nuclear as a means of slowing
down the retirement, especially of
coal-dependent utilities. The FERC
order will look at the resiliency
of regional and independent
transmission organizations (RTOs/
ISOs), which are responsible for
insuring the adequacy of electricity
via pricing in various regions of
the U.S.
The FERC order endorses the
underlying concern of the Perry
proposed rule, but does not go
so far as to endorse the need for
"out-of-market" payments that
RTOs and ISOs can make to generators to ensure supply in extreme
weather. However, FERC will
certainly consider pricing reforms,
which could benefit pipelines.
In comments on the Perry
proposal, which it opposed, the
association stated that "INGAA
agrees that there is an opportunity to build a more reliable
and resilient grid, and urges the
Commission to determine how to
value and incentivize reliable and
resilient performance attributes
on a market-based, fuel-neutral
basis in keeping with its precedent."
INGAA has argued in the past that
too-few, gas-fired generators -
particularly in the Northeast, where
pipeline capacity is limited - have
contracted for primary, firm
contracts, the lack of which help
create natural gas supply interruptions during severe weather.
The Order that FERC issued
on Jan. 8, 2018, showed a split
among commissioners, with Neil

Chatterjee alone making it clear he
would like to see quick action to determine whether interim measures
are needed to avoid near-term bulk
power system resilience challenges.
He wanted each RTO/ISO to either
submit tariff revisions to provide
interim compensation for existing
generation resources that may provide necessary resilience attributes
and are at risk of retirement, or show
cause why it should not be required
to do so. But Chatterjee appeared to
be on the losing side of that issue,
as the other four commissioners
appeared to be less sympathetic
to the view that the bulk power
system was in immediate danger of
becoming unreliable.
FERC has been concerned about
the reliability of the power grid for
some years now, and has worked
with the North American Electric
Reliability Corporation (NERC) on
its reliability standards, including its
continued work on Critical Infrastructure Protection standards to
protect the system against cybersecurity and physical security threats.
Pipeline cybersecurity efforts came
up at hearings in the Senate Energy
and Natural Resources Committee
on Jan. 23, 2018, where reliability of
the bulk power system and FERC's
setting aside of Energy Secretary
Perry's request for coal and nuclear
subsidies was the topic du jour.
There, PJM President and CEO
Andrew Ott highlighted what he
implied were weaker cybersecurity standards for the natural gas
industry, compared to the electric
industry, when he testified before
the Senate Energy and Natural
Resources Committee a year earlier.
PJM Interconnection is the largest
RTO in the U.S.
The electric industry is subject to mandatory physical and
cybersecurity standards, ultimately
determined and enforced by FERC.
The natural gas pipeline industry
is subject to different, high-level
voluntary guidelines issued by the
Transportation Security Administration, augmented with yet a different
level of regulation by the Pipeline
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Underground Construction - March 2018

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