THE US Federal Energy Regulatory Commission (Ferc) made several attempts to improve transparency and competition in energy markets over the past five years. Most recently, in November, Ferc started investigations to determine whether three gas-pipeline companies may be earning unreasonably high profits. It said data filed by the three firms (in response to the new reporting requirements) indicated they may have collected returns on equity of up to 25%, or around twice the industry average of 12%.

However, investor perceptions about the stability and predictability of the regulatory regime greatly affect the industry’s ability to attract capital for new construction, expansions, maintenance and upgrades. Regulatory uncertainty tends to drive up the cost of capital and discourage investment in Ferc-regulated pipeline infrastructure, resulting in higher prices for gas consumers – ironically, the very evil against which Ferc is trying to guard.

In the first main action in the three cases, each pipeline company was directed to file data detailing costs and revenues for a 12-month period for Ferc to undertake a thorough rate review. The firms asked for extra time to compile the data, then filed heavily adjusted cost and revenue statistics rather than raw data. Moreover, all three claimed that, contrary to Ferc’s initial claims of profiteering, they were under-recovering their costs for a variety of reasons. In response, Ferc and other interested parties claim the three pipelines are withholding vital information, making a detailed analysis of the costs and revenues impossible.