WELCOME BACK, MY FRIENDS, TO THE SHOW that never ends."
So said two weary commission staffers, trudging out of the hearing room late Friday afternoon, Jan. 31, as the Federal Energy Regulatory Commission adjourned its technical conference on the financial outlook for natural gas pipelines.
The hearing ran way behind schedule (em further evidence that before she left last summer for the Department of Energy, former FERC Chairwoman Elizabeth Moler neglected to pass along to successor James Hoecker whatever gene she possessed that allowed her to keep meetings moving right along. By 5:30 p.m., when many witnesses had left for the airport, Hoecker at last relented. "I know when it's 'Miller Time,'" he said, but his remark fell flat.
Double Your Money
On time or not, the "show" at the FERC could not have been more revealing. Natural gas pipelines sit poised between two worlds. They look like monopolies. Federal law (the Natural Gas Act) still treats them that way. Using that law, and relying on the discounted cash flow model, the FERC now promises pipelines a return on equity no higher than 10.88 percent. (I explain further below.) But Wall Street feels differently. To the brokers and fund managers, you're either growth stock, or you're toast. With the S&P 500 earning 20 percent or more for three consecutive years, and with companies like Williams, PanEnergy and Sonat beating even the S&P since December 1991, the Street wants the FERC to award big, guaranteed equity returns for the pipes or says it will take its capital elsewhere. Never mind that the high-flying pipes owe their success primarily to outside investments, like (for Williams) telecommunications.