Energy Transfer 2010 Annual Report Download - page 42

deemed just and reasonable by the FERC. The rates charged by natural gas companies are generally required to
be on file with the FERC in FERC-approved tariffs. Pursuant to the NGA, existing tariff rates may be challenged
by complaint and rate increases proposed by the natural gas company may be challenged by protest. We also may
be limited by the terms of negotiated rate agreements from seeking future rate increases, or constrained by
competitive factors from charging our FERC-approved maximum just and reasonable tariff rates. Further, the
FERC has the ability, on a prospective basis, to order refunds of amounts collected under rates that have been
found by the FERC to be in excess of a just and reasonable level.
Transwestern made a general rate case filing under Section 4 of the NGA in September 2006. The rates in this
proceeding were settled and are final and no longer subject to refund. Transwestern is not required to file a new
general rate case until October 2011. However, shippers (other than shippers that have agreed, as parties to the
Stipulation and Agreement, not to challenge Transwestern’s tariff rates through the remaining term of the
settlement) have the statutory ability to challenge the lawfulness of tariff rates that have become final and
effective. The FERC may also investigate such rates absent shipper complaint.
Most of the rates to be paid by the initial shippers on our newly constructed interstate pipelines are established
pursuant to long-term, negotiated rate transportation agreements. Other prospective shippers on our newly
constructed interstate pipelines that elect not to pay a negotiated rate for service may opt instead to pay a cost-
based recourse rate established by the FERC as part of our newly constructed interstate pipelines, certificate of
public convenience and necessity. Negotiated rate agreements generally provide a degree of certainty to the
pipeline and shipper as to a fixed rate during the term of the relevant transportation agreement, but such
agreements can limit the pipeline’s future ability to collect costs associated with construction and operation of the
pipeline that might be higher than anticipated at the time the negotiated rate agreement was entered. On
December 17, 2009, the FERC issued an order granting authorization to construct, own and operate the
Fayetteville Express pipeline, and on April 7, 2010, the FERC issued an order granting authorization to construct,
own and operate the Tiger pipeline. On June 17, 2010, we filed an application for authorization to construct, own
and operate the Tiger pipeline expansion project to add 400 MMcf/d of capacity to the Tiger pipeline. In
February 2011, we accepted the FERC’s order authorizing the construction and operation of this expansion
project.
Any successful challenge to the rates of our interstate natural gas companies, whether brought by complaint,
protest or investigation, could reduce our revenues associated with providing transportation services on a
prospective basis. We cannot guarantee that our interstate pipelines will be able to recover all of their costs
through existing or future rates.
The ability of interstate pipelines held in tax-pass-through entities, like us, to include an allowance for income
taxes in their regulated rates has been subject to extensive litigation before the FERC and the courts, and the
FERC’s current policy is subject to future refinement or change.
The ability of interstate pipelines held in tax-pass-through entities, like us, to include an allowance for income
taxes as a cost-of-service element in their regulated rates has been subject to extensive litigation before the FERC
and the courts for a number of years. It is currently the FERC’s policy to permit pipelines to include in
cost-of-service a tax allowance to reflect actual or potential income tax liability on their public utility income
attributable to all partnership or limited liability company interests, if the ultimate owner of the interest has an
actual or potential income tax liability on such income. Whether a pipeline’s owners have such actual or potential
income tax liability will be reviewed by the FERC on a case-by-case basis. Under the FERC’s policy, we thus
remain eligible to include an income tax allowance in the tariff rates we charge for interstate natural gas
transportation. The application of that policy remains subject to future refinement or change by the FERC. With
regard to rates charged and collected by Transwestern, the allowance for income taxes as a cost-of-service
element in our tariff rates is generally not subject to challenge prior to the expiration of our settlement agreement
in 2011.
40