El Paso Natural Gas Co. L.L.C., 071615 FERC, RP08-426-017

Docket Nº:RP08-426-017, RP12-806-000
Party Name:El Paso Natural Gas Company, L.L.C.
Judge Panel:Before Commissioners: Norman C. Bay, Chairman; Philip D. Moeller, Cheryl A. LaFleur, Tony Clark, and Colette D. Honorable. Nathaniel J. Davis, Sr., Deputy Secretary.
Case Date:July 16, 2015
Court:Federal Energy Regulatory Commission
 
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152 FERC ¶ 61, 039

El Paso Natural Gas Company, L.L.C.

Nos. RP08-426-017, RP12-806-000

United States of America, Federal Energy Regulatory Commission

July 16, 2015

Opinion No. 517-A

Before Commissioners: Norman C. Bay, Chairman; Philip D. Moeller, Cheryl A. LaFleur, Tony Clark, and Colette D. Honorable.

ORDER ON REHEARING AND COMPLIANCE

Table of Contents

Paragraph No.

I. Background ............................................................................................................................ 3.

II. Requests for Rehearing/Clarification of Opinion No. 517, Docket No. RP08-426-017 ...... 9.

A. Procedural Matters ........................................................................................................... 12.

B. Capital Structure ............................................................................................................... 13.

1. Requests for Rehearing ................................................................................................. 18.

2. Commission Determination .......................................................................................... 26.

a. The Commission's Ratemaking Precedent Addressing Loans to Shareholders and Undistributed Subsidiary Earnings Support the Equity Adjustment ...................... 28.

b. The Disputed Factual Evidence Fails to Justify Counting the Affiliate Loan in

El Paso's Capital Structure ............................................................................................ 54.

c. The Ratemaking Precedent Relied on in Opinion No. 517 Remains Good Law ..... 101.

d. The Commission Affirms its Decision Not to Reopen the Record to Permit El

Paso to Argue Purchase Accounting Precedent ............................................................ 127.

e. El Paso's Unadjusted Capital Structure is Not Representative of the Capital Invested in Regulated Activities and the Adjustment is Not Punitive ......................... 134.

f. El Paso Was Not Prejudiced by Its Inability to Cross Examine a Staff Witness on Capital Structure Issues ............................................................................................ 140.

g. El Paso Failed to Support a Working Capital Adjustment ....................................... 143.

h. El Paso Failed to Demonstrate that the Adjusted Capital Structure is

Inappropriate for Ratemaking Purposes ........................................................................ 144.

C. Line 1903 .......................................................................................................................... 148.

1. Request for Rehearing .................................................................................................. 151.

2. Commission Determination .......................................................................................... 166.

3. Accounting Matters ...................................................................................................... 179.

D. Short-term Firm and Interruptible Rates .......................................................................... 181.

E. Article 11.2 ....................................................................................................................... 201.

1. Standard of Review ....................................................................................................... 203.

2. Just and Reasonable Review ......................................................................................... 226.

3. Above-Cap Costs .......................................................................................................... 248.

4. Article 11.2(b) compliance ........................................................................................... 278.

III. Docket No. RP12-806-000 Compliance Filing ................................................................... 290.

A. Public Notice and Responsive Pleadings ......................................................................... 291.

B. Procedural Matters ............................................................................................................ 292.

C. Line 1903 .......................................................................................................................... 293.

D. Capital Structure and Article 11.2 .................................................................................... 296.

E. Short-term Firm and Interruptible Rates .......................................................................... 299.

F. Compliance Filing and Refund Report ............................................................................. 303.

Appendix

1. On May 4, 2012, the Commission issued an Opinion and Order on Initial Decision in Opinion No. 517 in Docket No. RP08-426-000, El Paso Natural Gas Company, L.L.C.'s (El Paso) general system-wide rate proceeding pursuant to section 4 of the Natural Gas Act (NGA).1 On June 4, 2012, El Paso and a number of other parties filed requests for rehearing and/or clarification of Opinion No. 517 in Docket No. RP08-426-017. On June 8, 2012, El Paso filed, in Docket No. RP12-806-000, revised tariff records to comply with Opinion No. 517.

2. In this order, the Commission accepts El Paso's revised tariff records as consistent with the determinations in Opinion No. 517. In addition, the Commission grants limited rehearing to recognize that El Paso has demonstrated that it increased its outstanding debt in the relevant time frame by $50 million through a 2007 debt issuance. As a consequence, the Commission agrees that El Paso should deduct this amount from its outstanding debt when it adjusts its capital structure to reflect a loan to its shareholding parent company, as ordered in Opinion No. 517. As discussed at the conclusion of this opinion, El Paso is directed to file such revised tariff records as are necessary to reflect the Commission's determination on rehearing within 30 days. El Paso is further required to provide refunds within 60 days and provide a report to the Commission consistent with section 154.501 of the Commission's regulations.

I. Background

3. This proceeding began on June 30, 2008, when El Paso filed a general rate case pursuant to NGA section 4 to implement a number of changes to its tariff, including new services, a rate increase, and changes in certain terms and conditions of service (2008 Rate Case). The Commission accepted and suspended El Paso's primary tariff sheets, to become effective on January 1, 2009, subject to refund and conditions, and established procedures for a technical conference and hearing.2

4. On March 13, 2010, El Paso filed an uncontested settlement on the majority of the issues in this case (2010 Settlement). The settlement was approved by the Commission on April 28, 2010.3 Article V of the 2010 Settlement sets forth the four issues the participants reserved for hearing and merits determination: (1) the amount to be included in El Paso's capital account for ratemaking and accounting purposes related to Line 1903; (2) the appropriate capital structure; (3) the appropriate rate design for the maximum recourse rate for interruptible transportation service (IT), interruptible parking and lending service (PAL), and short-term firm transportation rates; and (4) issues related to Article 11.2 of the 1996 Settlement. The 2010 Settlement provides that the resolution of the issues relating to capital structure and Line 1903 will not affect the settlement rates or revenues during the term of the 2010 Settlement, which will expire on April 1, 2011, the effective date for El Paso's subsequent rate case in Docket No. RP10-1398-000. Thus, the capital structure and Line 1903 determinations will only take effect on Commission acceptance of the ultimate rates in the subsequent 2011 Rate Case. The hearing on the four reserved issues commenced on May 18, 2010 and concluded on June 8, 2010.

5. On September 30, 2010, El Paso filed another general section 4 rate case in Docket No. RP10-1398-000 (2011 Rate Case). The Commission accepted and suspended the primary tariff records, to be effective April 1, 2011, subject to refund and conditions and the outcome of the hearing established in the order.4 Thus, the rates determined in the Docket No. RP08-426-000 proceeding are effective only for a locked-in period from January 1, 2009 through March 31, 2011. As noted above, the Commission's determinations on capital structure and Line 1903 take effect only with the acceptance of the rates in Docket No. RP10-1398-000. Furthermore, in Docket No. RP10-1398-000 the Commission accepted the proposed tariff records subject to the outcome of the hearing in Docket No. RP08-426-000 regarding the four reserved issues. El Paso moved its proposed primary tariff records into effect on April 1, 2011, and has been collecting revenues produced by the subject-to-refund rates since that date. The evidentiary hearing was conducted before an Administrative Law Judge from October 25 to December 16, 2011, and an Initial Decision was issued in Docket No. RP10-1398-000 on June 18, 2012.5 The Commission issued Opinion No. 528, its opinion and order on that Initial Decision on September 17, 2013.6

6. On May 4, 2012, the Commission issued Opinion No. 517 in El Paso's 2008 Rate Case proceeding in Docket No. RP08-426-000. In Opinion No. 517, the Commission made the following findings: (1) El Paso's depreciable plant account should only include the $10.5 million associated with El Paso's investment in Line 1903, and El Paso has not shown that it has booked accumulated depreciation and deferred income taxes assessed on the unused California segment...

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