FERC Ups Investment Returns on Gas Infrastructure

To attract investments in gas pipeline construction, the Federal Energy Regulatory Commission voted to allow investors to reap an 11.2 percent return on equity - overturning a commission administrative law judge's proposal of a 9.34 percent return. "At the end of the day you have to have a return that's high enough to attract capital," said commissioner Jon Wellinghoff. The case was initiated by Kern River Gas Transmission, which has facilities in California that stretch from the California-Nevada border to Bakersfield. Kern River, however, proposed a return on equity of 15.1 percent. In addition to that matter, the commission took up a long list of actions at its first meeting in years with a full complement of commissioners - a majority of whom hail from Western states. During the 2000-01 energy crisis, the commission was criticized by state agencies, the Legislature, and the executive office for appearing to leave California out in the cold. In other gas-related action, regulators expanded blanket approvals for natural gas infrastructure projects. It also raised limits on related costs - from $8.2 million to $9.6 million for automatic authorizations and from $22.7 million to $27.4 million for projects with permit applications. The action was seen, once again, as speeding infrastructure development - particularly for liquefied natural gas - according to commission chair Joe Kelliher. The move allows certain new facilities to gain permits without case-by-case authorization. In other federal regulatory action, the commission approved 83 of 107 reliability standards for wholesale power. "This is the second big step to establish a reliability regime," noted Kelliher. The remaining reliability standards are "fill-in-the-blank" standards, according to the commission. Those are regional in origin. The commission also interpreted the Energy Policy Act of 2005 in relation to the Public Utility Regulatory Policies Act of 1978 (PURPA). "PURPA is alive and well," said Wellinghoff. Kelliher said that the commission needed to clarify the act because the PURPA language in it "is one of the less well-written parts." Utilities, under the EPAct, must still buy power from qualifying facilities (QFs). However, with QFs above 20 MW in some markets, electric utilities may be relieved of their mandatory purchase obligation. In particular, the commission found that the Electric Reliability Council of Texas offers comparable competitive wholesale power market access, which allows it to escape PURPA's mandatory purchase obligation. The California Independent System Operator's ability to deflect mandatory purchases from small power producers is "premature," according to the commission. CAISO is working on redesigning its wholesale market to allow for the type of day-ahead bidding that FERC cited in relieving the Texas grid operator from its mandatory QF power purchase. - J.A. Savage

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FERC Ups Investment Returns on Gas Infrastructure

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