Comments on: Pipeline profiteering Sat, 23 Mar 2013 13:49:31 +0000 hourly 1 By: DavidCayJ Fri, 16 Dec 2011 02:00:36 +0000 @Ozzie, all pipelines my column refers to are rate-regulated monopolies as a matter of law. If they were competitive there would be no reason to have ever regulated their rates.

The absolute dollars are not the issue, but the rate of return — the 55 percent return cited for the Sunoco line is not a market return. I included the average for all large US companies — 6.7 percent — to give perspective.

And I showed how automatic 6.8% annual rate increases are authorized, which is not market pricing, certainly not in this economy.

I don’t think “ruin” is a reasonable standard, as you evidently do, nor is the issue villainy, as you write. The issue is whether FERC is acting properly and applying the legal standard of just and reasonable is the standard set by law. If you can show how a 55% ROA is reasonable please do so.

Also, its the SFPP pipeline, not SPFF; the Sunoco profit was not $3.9 million (which was authorized) but seven times that much. And Johnston has a “t” in it.

By: Ozzie903 Sun, 27 Nov 2011 02:45:19 +0000 Assuming the facts reported in the article are correct, many of the pipeline companies apparently are earning higher profits than regulated targets.

The significance of that finding is open to discussion, though.

First, I don’t agree that the pipelines are monopolies. Today there are many pipeline companies serving the Texas-Oklahoma region that most of SPFF serves — the pipeline company highlighted by Mr. Johnson’s article. Moreover, tanker trucks and trains haul oil in various markets. So I don’t see why we’re regulating the pipelines as though they’re monopolists, though historically that approach may have been justified.

Second, Mr. Johnson mentions that SPFF’s allowable profit on its Mid-Valley Pipeline division last year was $3.9 million. I’m from Missouri, so you’ve got to show me that $3.9 million represents a high rate of return for the operator. Just saying that SPFF earned more than $3.9 million doesn’t qualify the company as public villain.

Third, to judge whether a company is exercising monopoly power rather than simply experiencing some short-term prosperity that’s balanced in other years by short-term disappointments, Mr. Johnson (who has, after all, won the Pulitzer Prize for his reporting) should also provide figures for a longer time frame, such as 5-10 years.

Recently, for example, oil production has increased more rapidly in Texas and Oklahoma than pipeline capacity, so pipeline companies in that region (including SPFF) have faced unusually strong demand. However, that will soon come to an end when expansion plans by competitors are completed over the next two or three years. Then SPFF’s profits will fall back to earth, possibly into negative territory.

Mr. Johnson projects a pro-market approach in his stories, bringing down the hammer not on ‘regular’ companies, but on ‘monopolies’ who are getting away with murder. But if he really had a pro-market approach, he would be more careful about designating a company a monopolist and judging it guilty by the standards he applies and the facts upon which he relies. Citing the horrible evils of railroads a century ago does not constitute evidence against SPFF, and the inclusion of the railroads in this story was inappropriate since there is very little real evidence presented that SPFF is bringing ruin to its customers.

I never read any of the articles that earned Mr. Johnson the Pulitzer, but I’m confident they were better than this one.

By: hacimo Tue, 25 Oct 2011 23:43:43 +0000 Please please don’t rock the boat on this. I have stock in several pipeline mlp’s and it is the only thing I own that’s going up. I need to retire in a few years and I’m hoping to live on the dividends. Have mercy!

By: Minisinkmom Tue, 25 Oct 2011 13:07:16 +0000 Mr. Johnston,

I am a resident in a small town in upstate NY fighting Nisource, DTE, and National Grid and their illegal plans to put a gas compression station in the middle of a residential neighborhood. In my experience FERC is there to rubber-stamp the industry NOT to regulate it. Despite the fact that these companies have lied under oath, misrepresented facts, and we have pointed out several discrepancies and contradictions in their FERC filing, some of which is illegal, FERC is not only allowing them to proceed, but is not conducting a full EIS per NEPA regulations. The idea that there is any oversight or regulation is a joke!

By: reutersreviewer Wed, 19 Oct 2011 08:34:24 +0000 This article is a great example of why Reuters has crediblity as a news source. There are many more rocks that need to be turned over and I hope you will persist in this excellent type of reporting. Keep up the good work!

By: SanPa Wed, 19 Oct 2011 05:05:30 +0000 Small wonder that the Koch Bros. are pushing so hard to deregulate via their support of the Tea Party movement. Will Murdoch still be able to deliver if he’s ousted from News Corp?

By: OneOfTheSheep Wed, 19 Oct 2011 02:31:47 +0000 Excellent Reporting. Hope this gets well publicized and corrected. About time “our” bureaucrats are made properly aware that they are there to serve “we, the people” and not their buddies. Kudos!

By: matthewslyman Tue, 18 Oct 2011 20:19:36 +0000 Bravo Mr. Johnston!

> “The commissioners avoided that by granting an indexed rate increase to all pipelines with no proof of higher costs required.”

Isn’t this one of the key advantages of inflation, that it’s supposed to keep service suppliers continually justifying their price-point to their customers as ongoing industrial innovation drives their costs down; (and in the context of at least limited competition)? FERC’s commissioners have apparently written this advantage out of their negotiating rulebook, but your article goes some way toward explaining why they might have done that.

UK rail tickets are presently allowed by the UK government to inflate by: generalised inflation PLUS several percent on top of that! I don’t get the logic of it (especially given that this arrangement has been continuing for some years now). The rail transport companies were already profitable, and I can’t see much evidence of major capital investments; people still frequently have to stand on trains outside “rush hour”. These companies continue going to the government with their begging bowls, demanding massive tax-funded support for railway infrastructure for “environmental” reasons. Is this also a scam?

It seems we’ve identified a template for government-insider/ “deregulation” lobbying scams. I doubt FERC is the only one…

By: doggydaddy Tue, 18 Oct 2011 19:18:58 +0000 You have a marvelously bright spotlight, Mr. Johnston. Please continue to pivot its light around our nation and its government. Absent good investigative reporting and op-eds like yours, this country would currently be left standing in utter darkness.

This innocuous little line is brilliant: “Excess profits amount to a tax on the public for private gain.” Boy, that sums up so much of our economic problems. But the mere mention of it provokes cries of “class warfare” or “socialism.” I disagree. I liken it more to sanity.

By: desmoines Tue, 18 Oct 2011 19:05:14 +0000 We need someone in the FERC to blow the whistle on these industries that are screwing the public. Lets step forward and do your duty you owe it to your country.