KINDER MORGAN WATCH

Feds probe pipeline returns
Friday, November 20, 2009 11:51 AM

http://www.istockanalyst.com/article/viewiStockNews/articleid/3656220

(Source: Tulsa World) By TINA DAVIS SEELEY; JIM POLSON

Federal regulators are investigating pipeline units operated by Kinder Morgan Inc., MidAmerican Energy Holdings Co. and TransCanada Corp. to determine whether they are earning more than their authorized returns.

The Federal Energy Regulatory Commission voted Thursday to probe Natural Gas Pipeline, run by Kinder Morgan; Northern Natural Gas, run by MidAmerican; and Great Lakes Gas Transmission, run by TransCanada.

The pipelines "may be substantially over-recovering their cost- of-service," FERC Chairman Jon Wellinghoff said.

The investigation was not prompted by any complaints, he added, and staff made its initial findings based on revenue forms submitted to the agency.

The three companies' 2008 returns ranged from more than 20 percent to more than 24 percent, FERC staff said.

"These returns lead staff to believe that these three pipelines are over-recovering their costs of service and may be charging rates that are no longer just and reasonable," said Kerry Noone of the agency's Office of Energy Market Regulation.

Regulators used a 12 percent return on equity as a preliminary starting point in the order. Each pipeline's rates are based on considerations including their debt-to-equity structure and an analysis of comparable companies' returns.

"It is an unusual move," Harold Kvisle, CEO of Calgary-based TransCanada, told Bloomberg Television. "We will be interested to go through the process with them."

Pipelines can earn more than their allowed rate of return when volumes are higher than anticipated when rates were set, Kvisle said.

In the past, the commission has lowered rates to bring returns in line and probably won't order refunds from TransCanada, Kvisle said. The company will cooperate with the investigation, he said.

"We're surprised," Mike Loeffler, a spokesman for Omaha, Neb.- based Northern Natural, said. "We've not had a rate case since 2004, and Northern has the lowest natural-gas transportation rates in the Midwest."

Northern Natural is owned by the MidAmerican Energy Holdings subsidiary of Warren Buffett's Berkshire Hathaway Inc.

"We will review and evaluate the order once we receive it," said Emily Mir Thompson, a spokeswoman for Houston-based Kinder Morgan, operator of the Natural Gas Pipeline of America.