UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION. Northern Natural Gas Company ) Docket No. RP

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1 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Northern Natural Gas Company ) Docket No. RP RESPONSE OF NORTHERN NATURAL GAS COMPANY TO NORTHERN NATURAL INTERVENORS ANSWER TO MOTION TO TERMINATE SECTION 5 INVESTIGATION Pursuant to Rules 212 and 213 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission s ( FERC or Commission ), 18 C.F.R , (2018), Northern Natural Gas Company ( Northern ) hereby responds to the answer filed by the Northern Natural Intervenors ( Intervenors ) in response to Northern s motion to terminate the section 5 investigation in the above-referenced docket. 1 The Intervenors claim Northern s motion to terminate was procedurally deficient and should be rejected. As explained further below, the Intervenor s procedural objections are meritless and provide no basis to reject Northern s request. Crucially, the Intervenors do not dispute that the section 5 investigation in this proceeding was initiated based on fundamentally erroneous assumptions. Northern therefore respectfully requests the Commission to grant its motion and promptly terminate the investigation in this proceeding or, in the alternative, hold it in abeyance until after Northern files its 2018 FERC Form No. 2 on April 1 The Northern Natural Intervenors are: Northern States Power Company, a Minnesota corporation, Northern States Power Company, a Wisconsin corporation, Southwestern Public Service Company, the Michigan Public Service Commission, the Northern Natural Shipper Alliance (St. Paul Park Refining Co., LLC; Homeland Energy Solutions, LLC; A1-Corn Clean Fuel; Smithfield Foods, Inc.; Big River United Energy, LLC; Redfield Energy, LLC; Cardinal FG Company; Badger State Ethanol, LLC; Mayo Clinic; and City of Two Harbors, Minnesota), Process Gas Consumers Group, and Atmos Energy Corporation.

2 18, 2019, and the Commission has the opportunity to reevaluate its decision to initiate an investigation based on more recent data. I. MOTION FOR LEAVE TO ANSWER Rule 213(a)(2) of the Commission s Rules of Practice and Procedure prohibits an answer to an answer unless otherwise ordered by the decisional authority. 18 C.F.R (a)(2). Northern respectfully requests a waiver of the Commission s rule in this instance, since Northern s answer is intended to ensure the record is accurate and to assist the Commission in its decisionmaking process. The Commission has previously waived its rule and accepted an answer to answer when it has aided its decision-making process and provided a more complete record. See Saltville Gas Storage Co. L.L.C., 164 FERC 61,212 at n.6 (2018) (The "Commission finds good cause to accept Saltville s answer because it will not delay the proceeding, will assist the Commission in understanding the issues raised, and will ensure a complete record."). II. ANSWER As explained in Northern s motion to terminate, the Commission s decision to initiate a section 5 investigation in this case was based on a fundamental error in calculating Northern s return on equity ( ROE ). The Commission stated that it was initiating a section 5 investigation because it was concerned that Northern s current rates may be unjust and unreasonable [i]n light of [the Commission s] estimate that Northern s 2018 ROE is 17.3 percent. Northern Natural Gas Co., 166 FERC 61,033, at P 23 (2019) ("Hearing Order"). The 17.3 percent ROE estimate on which the Hearing Order was based resulted from the Commission s attempt to update Northern s costs and revenues through the second quarter of Hearing Order at P 21. In Appendix A to the Hearing Order, the Commission adjusted revenues by $115,386,243 for the changes in all revenue accounts during the first two quarters of The Commission, however, erroneously 2

3 deducted from total operating revenue only the $28,436,340 in operational gas sales from calendar year 2017, instead of the $89,210,392 in operational gas sales through the second quarter of Had the Commission calculated the ROE consistent with the FERC Form 501-G, the ROE would have been 14.3 percent, which is well within the zone of reasonableness and well below the ROEs the Commission has previously relied upon to initiate a section 5 investigation of a pipeline's existing rates. Northern further explained that if the Commission had included both the revenues and costs related to operational gas sales as Northern proposed, Northern s estimated ROE would have been 13.7 percent. The Intervenors do not challenge this analysis. A. Northern s motion to terminate was procedurally proper. The Intervenors argue that Northern's motion "is really a procedurally deficient request for rehearing of the Commission's Hearing Order." Answer at 4. They further claim that Northern should have directed its motion to the Presiding Judge instead of the Commission. Id. at 5. The Intervenors are wrong on both counts. Northern s request to terminate the investigation in this proceeding was properly filed as a motion to the Commission. The Commission's rules expressly provide that a motion may be filed at any time, unless otherwise provided. 18 C.F.R (a)(1). The Commission has previously granted motions to terminate section 5 proceedings and not rejected them as procedurally improper. See, e.g., Northern Natural Gas Company, 131 FERC 61,178 (2010) (granting motion to terminate section 5 investigation), reh g denied, 133 FERC 61,111 (2010). As the Commission has explained, it has broad discretion, at the early stage of section 5 proceeding to terminate an investigation. Northern Natural, 131 FERC 61,178 at P 14 (citing Wisconsin v. Federal Power Commission, 373 U.S. 294, (1963)). 3

4 The Intervenors argument that Northern should have filed a request for rehearing of the Hearing Order lacks merit. Requests for rehearing are limited to final orders and an order initiating an investigation is not a final order. See 18 C.F.R (b) (permitting requests for rehearing of any final decision or other final order in a proceeding. ). However, as the Intervenors acknowledge, it is the substance of a pleading, not the title that is controlling. Answer at 4. To the extent the Commission determines that Northern s motion is actually a request for rehearing as the Intervenors claim, (Answer at 4), the Commission should review it accordingly. See, e.g., New York Independent System Operator, Inc., 147 FERC 61,191, at P 9 (2014) (treating pleading styled as a request for clarification as a request for rehearing). There is no merit to Intervenors claim that Northern s motion would be procedurally deficient as a request for rehearing because it lacked citation to relevant legal authority. Answer at 5. Northern s pleading did cite relevant legal authority. See Motion at 2 n.2 and 4 n.6. It also clearly set out the issue for which relief was requested, namely that the investigation was initiated based on a manifest error that caused the Commission to make an incorrect assumption about Northern s ROE. The motion, therefore, met the procedural requirements for a request for rehearing in the event the Commission determines it is appropriate to treat it as such. The Intervenors claim that Northern should have filed its motion with the Presiding Judge instead of the Commission is also incorrect. The Intervenors cite the Presiding Judge s authority to rule on motions for summary disposition and other types of motions generally. Answer at 5 (citing 18 C.F.R , 504(b)(8) & (9)). But Northern is not seeking summary disposition (i.e., a ruling on the merits where there is no genuine issue of fact material to the decision ). See 18 C.F.R (b). Instead, Northern seeks termination of the investigation on the ground that it was initiated based on a mistaken premise. Termination of a section 5 proceeding is not among the 4

5 powers delegated to a Presiding Judge. See 18 C.F.R The Commission, by contrast, has authority to terminate a section 5 proceeding, see Northern Natural Gas Company, 131 FERC 61,178 (2010), so the motion was properly directed to the Commission. B. Intervenors do not dispute that the Hearing Order miscalculated Northern s ROE. As noted, the Commission has broad discretion to terminate an investigation in its early stages. See Northern Natural, 131 FERC 61,178 at P 14. That is especially true where the information on which the Commission relied to open the investigation is revealed to be incorrect. The Intervenors do not dispute that the Commission miscalculated Northern s ROE. Nor do they point to any precedent in which the Commission initiated a section 5 investigation against a pipeline with an ROE in the range of Northern s ROE when properly calculated. Instead, the Intervenors argue that the Commission s decision to initiate an investigation was also based on the comments and protests raised in response to Northern's FERC Form 501-G submission. Answer at 6. Specifically, the Intervenors contend that the Commission agreed with protestors that Northern s proposed adjustments to the FERC Form 501-G were asymmetrical because they reflected future cost adjustments but failed to reflect additional post-2017 revenues. Id. But, as explained above, it was the Commission s attempt to update Northern s revenue for post-2017 data that resulted in the erroneous ROE calculation. C. The Commission should exercise its discretion to terminate this investigation based on the significant error in calculations in the Hearing Order. As Northern has explained, a section 5 proceeding will necessitate a Section 4 rate increase to address Northern s significant modernization investment; therefore, the Commission will be bringing a rate increase upon all of Northern s customers much sooner than Northern would have otherwise planned. As indicated by Flint Hills Resources, LP, in its comments supporting Northern s motion to terminate, rate cases can result in higher rates for customers and, 5

6 irrespective of outcome, create uncertainty which require customers to expend resources. 2 National Public Gas Agency s comments supporting Northern s motion to terminate also expressed concern about higher rates resulting from full rate cases and regulatory uncertainty requiring customers to expend resources. 3 Plain and simple by initiating a section 5, the Commission will cause rates to increase for end-use consumers the very opposite of its stated goal. Moreover, the section 5 proceeding undermines Northern s successful efforts to manage its business without need for a rate increase. Since 2004, Northern has avoided increasing rates for customers by stewarding its substantial capital maintenance investment year after year since the last rate case and by seeking sustainable business solutions to address major competitive threats. Through 2019, rate base will have doubled from the last rate case, yet Northern has maintained rate stability while providing industry-leading service. The Commission indicated that it is committed to developing an understanding of each pipeline s unique and different circumstances in its response to the Tax Cuts and Jobs Act. 4 Basing a section 5 on a single incorrect ROE calculation would be directly contrary to the Commission s commitment to avoid a one-size-fits-all approach to addressing the impact of the Tax Cuts and Jobs Act. 2 Response of Flint Hills Resources, LP in Support of Northern Natural Gas Company s Motion to Termination Section 5 Investigation, or in the Alternative, Hold in Abeyance, at 1, Docket No. RP (January 30, 2019). 3 Response in Support of Northern Natural Gas Company s Motion to Terminate Section 5 Investigation, or in the Alternative, Hold in Abeyance, at 1, Docket No. RP (Feb. 12, 2019). 4 Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to Federal Income Tax Rate, 162 FERC 61,226, at P 28 (2018); see also id. at P 23, n ( [G]iven the unique and different circumstances across all pipeline rates including the presence of discounted and negotiated rates...., a one-size-fits-all approach to modify rates for every pipeline is not appropriate. ) 6

7 Ultimately, there is no dispute that the Commission initiated the section 5 proceeding in this case based on a miscalculation of Northern s ROE. The Commission unequivocally stated that it was initiating the section 5 investigation based on the 17.3 percent ROE estimate that has been shown to be incorrect. Hearing Order at P 23. Since the fundamental assumption on which the Hearing Order was based is shown to have been in error, the Commission should promptly terminate the investigation. III. CONCLUSION Northern respectfully requests that the Commission grant the relief requested in Northern's January 28, 2019 motion and terminate the investigation in the above proceeding. Alternatively, if the Commission declines to terminate the proceeding, Northern respectfully requests that the proceeding be held in abeyance until after it files its 2018 FERC Form No. 2 on April 18, 2019, and the Commission has the opportunity to reevaluate its decision to initiate an investigation based on more recent data. Respectfully submitted, /s/ Daniel J. Poynor Laura Demman Daniel J. Poynor Vice president, General Counsel Monique L. Watson & Regulatory Affairs STEPTOE & JOHNSON LLP Northern Natural Gas Company 1330 Connecticut Avenue, N.W. P.O. Box 3330 Washington, D.C Omaha, Nebraska dpoynor@steptoe.com (402) mwatson@steptoe.com Laura.Demman@nngco.com Counsel for Northern Natural Gas Company February 13,

8 CERTIFICATE OF SERVICE I hereby certify that I have this day served a copy of the foregoing document on each person designated on the official service list compiled by the Secretary for this proceeding. Dated at Washington, D.C. this 13 th day of February, /s/ Eric Engberg Eric Engberg Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, D.C (202) eengberg@steptoe.com 8