Twenty-one Natural Gas Pipelines With $4 Billion of Revenue at Risk in Rate Cases Through 2020
The FERC has nearly completed its review of the Forms 501G that it required pipelines to file last year, but the risk of further rate reductions persists. As we discuss below, there are 21 pipelines with some exposure for rate changes before the end of 2020 having a total annual revenue in excess of $4 billion, which is about 20% of the total annual industry revenue. Energy Transfer, Enbridge, Kinder Morgan, TC Energy, and Williams each have more than one pipeline with the potential for further rate changes between now and the end of 2020. Today, we examine three separate categories of pipelines with exposure: (1) those that are in settlement discussions with their customers; (2) those that are required to file a rate case by the end of 2020; and (3) those that have a moratorium ending before 2020.
Settlement Discussions Underway
The first class of pipelines that still have a rate risk are those that have informed FERC that they are currently in settlement discussions with their customers. This group will almost certainly need to file either an agreed settlement or a Section 4 rate case. This group includes Enbridge’s Algonquin Gas Transmission, Tallgrass Interstate Gas Transmission, Kinetica Energy Express and Kinetica Deepwater Express.
During the Form 501G process we developed a quadrant chart that rated the risk for a pipeline of a rate review based on its post-tax cut ROE (divided at 16%) and indicated rate reduction (divided at 8%). The chart below shows where each of these pipelines fall on that quadrant chart based on their Form 501G. Because these pipelines are in serious discussions with their shippers, we would expect that the negotiations are about rate cuts and will likely end up somewhere between zero and the indicated rate reduction found in the Form 501G.
Pipelines Filing Rate Cases By the End of 2020
Most rate cases are concluded by a settlement, and a common provision in the settlement agreement is a requirement to file a rate case in the future by a certain date (a comeback requirement). Eight pipelines have agreed to file a Section 4 rate case before the end of 2020. These pipelines can be further divided into three classes.
The first group of pipelines are those that filed a Form 501G and had their shippers file protests, but whose 501G proceeding has yet to be closed by FERC. This group includes National Fuel Gas Supply and Viking Gas Transmission. National Fuel’s 501G showed that it had a post-tax cut ROE of 15.5% and an indicated rate reduction of 6.6%. Viking Gas reported a post-tax cut ROE of 35.9% and a rate reduction of 4.2%. They both are required to file a rate case by the first of next year.
The second group consists of three pipelines that have had their 501G proceedings closed by FERC but are obligated to file rate cases. This group includes TC Energy’s Columbia Gulf Transmission, which is required to file a case by January 31, 2020, Kinder Morgan’s and Energy Transfer’s Florida Gas Transmission, which must file a case by February 1, 2020, and Williams’s Pine Needle LNG, which must file a case by May 1, 2020. Of the three, only Florida Gas Transmission reported a post-tax cut ROE above the 10.55% ROE used in the Form 501G. Its reported ROE of 22% was far higher than those being proposed in current rate cases and its indicated rate reduction was 8.5%.
The final group of three pipelines that have a comeback requirement in 2020 were each granted a waiver by FERC from filing their Form 501G, and includes Enbridge’s Alliance Pipeline and Maritimes & Northeast Pipeline, along with Dominion’s Cove Point. Because they were granted a waiver from filing the Form 501G in 2018, we have prepared a notional Form 501G for each pipeline based on their Form 2s for 2017 (and included them in the above chart). While FERC’s denial of a tax allowance for Master Limited Partnerships creates uncertainty for all three of these pipelines, we have treated them as corporations because they all report that, as of 2018, they are owned by corporations. Given that assumption, it appears that Alliance and Maritimes both have post-tax cut ROEs that would put them at risk of a rate reduction. The same cannot be said for Cove Point.
Pipelines With Moratoria Ending in 2019 and 2020
Nine additional pipelines have moratoria that end in 2019 or 2020, but either do not have a comeback requirement or have a comeback requirement in 2022 or 2023. These pipelines therefore will not be required to file a rate case but could be forced into one by their shippers. As with the pipelines that have a comeback requirement, this class of pipelines can be further divided into three groups.
First, TC Energy’s ANR Pipeline had shippers object to its Form 501G filing and FERC has not yet closed that proceeding. TC Energy reported a 17.3% post-tax cut ROE in its Form 501G and an indicated rate reduction of 6.4%. Its moratorium ends on August 1 of this year, but its comeback is not until August 1, 2022. Therefore, if it is going to face a rate challenge, it will likely be one filed by its shippers or FERC under Section 5 of the Natural Gas Act.
The second group of pipelines in this class is a group of five pipelines, each of which filed a Form 501G and had FERC close that proceeding. This group includes Kinder Morgan’s Colorado Interstate Gas, Energy Transfer’s Transwestern Pipeline, TC Energy’s KO Transmission, as well as Stingray Pipeline and Venice Gathering. Like ANR Pipeline, these pipelines do not have a rate risk unless one of their shippers or FERC were to file a Section 5 complaint following the end of their moratoria. Given the low ROEs in this group, this does not appear to be a substantial risk.
The pipelines in the third group in this class were granted a waiver from filing their Form 501Gs in 2018. Therefore, we have completed a notional Form 501G for them based on the data in their 2017 Form 2s (and included them in the above chart). This group includes Williams’s Northwest Pipeline, Enbridge’s Ozark Gas Transmission System and Eastern Shore Natural Gas. The Form 501Gs we have prepared show that none of the three has an ROE that puts it at a substantial risk of a rate reduction.
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