Coping with rising profitability, a decade after restructuring.
Jeff D. Makholm is a senior vice president at National Economic Research Associates Inc. (NERA), and Kurt G. Strunk is a senior consultant.
During the past three years, the Federal Energy Regulatory Commission (the FERC) has initiated five investigations into the justness and reasonableness of interstate gas pipeline rates.1 Under the Natural Gas Act of 1938 (the NGA), the FERC has a statutory obligation to assure that such pipelines rates are just and reasonable. Case precedent makes clear that no single just and reasonable rate exists for a given pipeline at a given time; instead, for rates to meet the just and reasonable standard, they must remain within a zone of reasonableness. In judicial review of its decisions, the courts have held the FERC to an end result within that zone.2 The FERC initiated the examination of these five pipelines’ rates precisely because their Form 2 financial data appeared to indicate excessive profitability falling outside that zone.