Folks not directly involved in the FERC’s rate-setting process for interstate gas pipelines may think it’s a largely mechanical — and painfully boring — activity. But the process is actually often incredibly dynamic, with a lot of give-and-take among pipeline representatives, pipeline customers and FERC staffers, all aimed at reaching an agreement on rates that everyone involved can live with. We recently explained the “formal process” and (informal, confidential) “settlement process” that usually play out along parallel tracks. In today’s RBN blog, we expand on our look at the rate-setting process for gas pipelines with a few more nuances of how negotiated resolution really works.
In Part 1 of this mini-series, we said that the rates regulators set for transporting natural gas on interstate pipelines are all-important. They determine how much it costs to get gas from A to B and whether new capacity can be funded, and serve as the bedrock of regional gas price relationships around the nation’s pipeline grid.
We also described the formal process for rate-setting you see in public and the settlement process that occurs out of sight — not behind closed doors in a smoke-filled room, but under FERC-governed confidential processes. The latter is preferable in that it can enable all parties to achieve a not-so-terrible compromise rather than risk an outcome they’d hate — and it can reach rate certainty much faster than the formal process. (We noted that we know a lot about how this process works from the work we do in FERC rate cases, litigation and settlement negotiation, along with the fundamental market analysis needed to support regulatory pleadings and civil litigation in both federal and state courts. For more on the RBN Advisory Practice, click here.)
Figure 1. Minimum Timeline for FERC’s Formal Rate Process. Source: RBN Advisory Practice
Read More: Let’s Make a Deal – More on What Happens Behind the Scenes in Gas Pipeline Rate