TETCO’s FERC Rate Case - Awaiting the Battle, Part 2

Soon after Texas Eastern Transmission (TETCO) filed its rate case, we stated in TETCO’s FERC Rate Case - Awaiting the Battle that we expected FERC to suspend the proposed rate increases until June 1, 2019 and direct that a full evidentiary hearing be held on the justness and reasonableness of the new rates. As expected, FERC did so in an order issued on New Year’s Eve. There were a couple of interesting aspects to that order, however.

Whether you are a TETCO shipper, an Enbridge investor, or a shipper on a competitor pipeline, you need to follow this proceeding, as it will impact TETCO’s revenue, shippers’ costs, the use of competing pipelines, and future growth project plans. The FERC administrative law judge has scheduled a prehearing conference for next week to set a schedule for the proceeding, but in that order he indicated that his initial decision is not due until March 18, 2020 -- which means this will likely be a long process, especially given the size of the rate increases sought by TETCO.

Our prior report set the stage for the issues that would likely be raised, but today we use a key schedule filed by TETCO to assess (1) the impact of the rate increases on the largest shippers on TETCO and (2) how different the proposed rate increases are for different uses of the TETCO system. FERC Orders TETCO to Provide Data in a

Native Format

There are certain schedules that must be submitted in any rate case. One of the key schedules is Schedule G, which provides a detailed look at all of the firm contracts from which the pipeline generates revenue. The data provided in Schedule G is a treasure trove of information that is otherwise unavailable. It includes detailed information on the contracts that are used to generate the company’s revenue but also how those contracts have been used in the prior year. Portions of the schedule also show how much revenue those same contracts are expected to generate under the proposed rate increases. In many such rate cases, this schedule is provided as an Excel spreadsheet, which allows the pipeline’s opponents to use the information to prepare their challenge to the proposed rate increase, but also allows provides a very granular look at the revenue generating capacity of the pipeline. In this case, TETCO provided this 635 page schedule in a PDF format only.

A number of those objecting to the TETCO case requested that FERC require this schedule and others to be filed in an Excel format. TETCO responded by filing a number of the other schedules in Excel, but indicated that the primary portions of Schedule G, G-1, G-2 and G-3 did not exist in that format. FERC’s order required TETCO to file those schedules in a native file format, but did not specify what that format should be. As of this morning, TETCO had not yet filed these schedules.

One of our strengths here at LawIQ is our ability to take publicly available information and turn it into actionable data and then provide our analysis. So we didn’t wait for TETCO’s submission, but instead converted all 635 pages into an Excel spreadsheet to facilitate our review. A key benefit of having the data in a manipulable format is that it allows users to analyze a variety of questions that may or may not have relevance to the rate case, such as impact on specific shippers, creation of revenue models for the pipeline, and how the rate increases vary across different zones and services offered by the pipeline. We present below our analysis of how these rate increases will impact TETCO’s major shippers and how they vary by zone and service provided.

Impact on Shippers Varies

As we discussed in our original write-up on this case, the rate increases are substantial. The overall revenue increase is about 26% from the proposed changes, but the rates for particular services and transportation paths range from a reduction of 9% to an increase of almost 80%.

As can be seen below, the impact on particular shippers can be significant from both a percentage of their current costs and in absolute dollars.

Interestingly, four of the top shippers listed in TETCO’s detailed filings appear to be entities that are owned by National Grid, Narragansett Electric (referred to as Narra El Nat in TETCO’s filing), Brooklyn Union Gas (referred to as Bug Co Nat), Boston Gas (referred to as Bos Gas Nat) and KeySpan (referred to as Keyspan Nat). Collectively, these four companies are projected to see an annual tariff increase of almost $40 million.

The impact on each shipper as a percentage ranges from no increase to a tripling of the annual charges for, apparently, Dominion Energy Transmission (referred to as Domin En Tra). This is happening because TETCO is proposing to roll previously separately-stated rates like two of the rates applicable to Dominion into its standard FT-1 rate. Based on the Schedule G, this would cause one of Dominion’s contract rates to increase from $1.60375 per dth/per month to $13.515 per dth/per month, and another rate to go from $4.01075 per dth/per month to the same $13.515 per dth/per month. A similar problem is facing presumably PSE&G (referred to as Public Serv) which is seeing rates of $5.18, $6.576 and $6.864 going up to the same $13.515.

As can be seen from the chart above however, not every shipper is subject to such rate increases, as Chevron and ConocoPhilips will see no increase at all.

Zones and Types of Service Impact the Size of Rate Increase

TETCO’s rate structure is based on the zones in which the gas is received and the zone in which it is delivered, as depicted in the map below.

As evidenced by a comparison to the rates being charged to these major customers, the rate increase from current rates is not only conditioned on the zones, but also the class of service being provided. TETCO provides two primary classes of service for its larger customers:

Comprehensive Delivery Service (CDS), which is a form of no-notice service customarily held by local distribution companies
Firm Transportation Service (FT-1), a traditional firm service that does not include a no-notice right

ADIT - Where to Watch For That Resolution

As we also expected, one of the key issues raised by the shippers was how TETCO treated its ADIT even though it has now completed a corporate restructuring that eliminated the MLP from its structure. Interestingly, FERC noted that the treatment of ADIT had been raised in a separate accounting proceeding, AC18-220, which is currently pending. Rather than including ADIT in the hearings for the rate case, FERC found that the treatment of ADIT should be resolved in that accounting docket. This is an interesting choice by FERC because there are not nearly as many parties to that proceeding as there are in the rate case and presumably if a party failed to intervene in that case, they will not be able to challenge the decision reached. In any event, it is a key aspect of this case that will be decided on a completely different schedule and without the benefit of the hearing process available in the rate case. Finally, as we expected, the key issues that FERC has set for a hearing in this case include return on equity, cost of debt, rate base, cost allocations, rate design, capital structure, operation and maintenance expenses, billing determinants, depreciation, negative salvage, roll-in of existing facilities, and an income tax allowance.
We will continue to follow and report on the progress of this case. In the meantime, if any customers would like the Excel version of the Schedule G for your own analysis of the rates and impacts, please let us know.

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