Northern Natural Gas Company
P.O. Box 3330
Omaha, NE 68103-0330
402 398-7200
August 26, 2016
Via eFiling
Ms. Kimberly D. Bose, Secretary
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
Re:
OEP/DPC/CB-1
Northern Natural Gas Company
Docket No. CP16-472-000
Section 375.308(x)(3)
Dear Ms. Bose:
Northern Natural Gas Company (Northern) hereby submits for filing with the
Federal Energy Regulatory Commission (FERC) under the above-referenced docket,
Northern’s responses to the FERC data request issued August 9, 2016. Northern’s
response to the request is attached.
A copy of this response is being served to each person whose name appears on
the official service list for this proceeding. Any questions regarding this filing should be
directed to the undersigned at (402) 398-7103.
Respectfully submitted,
/s/ Michael T. Loeffler
Michael T. Loeffler
Senior Director, Certificates and External Affairs
cc: Parties of Record
1. In Exhibit K, Northern states that the estimated cost of constructing its project is approximately
$44,068,126. Northern estimates the capitalized allowance for funds used during construction
(AFUDC) to be $1,423,326 for its project. Provide the following worksheets in Microsoft
Excel. Include all supporting explanations, notes, formulas, and calculations:
a. The worksheet computations on a monthly basis to support the $1,423,326 of
AFUDC. Identify the debt and equity AFUDC amounts.
RESPONSE:
For the purpose of estimating, Northern calculates AFUDC as a percentage of the total
project estimate based on comparable historical projects. The estimating engineer
assigns an AFUDC percentage, typically between 2% and 5% of total project costs,
depending on the estimated project duration and early financial commitments. The
estimate does not break out debt and equity AFUDC amounts by month.
The attached worksheet details AFUDC percentages estimated for the Northern Lights
2017 Expansion projects.
When actual costs are incurred, Northern will calculate AFUDC based on actual costs
paid. All accruals and retention charges as well as all other non-construction costs paid,
such as land and land rights, that are charged to the project will be excluded from the
AFUDC base. During construction, the AFUDC base will be equal to the sum of the prior
month project to-date payments, including AFUDC, plus one-half of the current month’s
payments. See the formula below.
AFUDC base = Prior month project to-date payments + AFUDC + ½ (current
month’s payments)
For the month assets are placed in-service, the AFUDC base is the sum of one-half of the
prior month project to-date payments, including AFUDC, plus one-fourth of the current
month’s payments. See the formula below.
AFUDC base = ½ (prior month project to-date payments) + AFUDC + ¼ (current
month payments)
Monthly AFUDC debt and equity accrual amounts are then determined based on the
monthly rates derived using the methodology provided in the response to item (b)
below, multiplied by the AFUDC base for the month.
b. The computation and methodology used to derive the debt and equity cost rates used
to derive the AFUDC rate.
RESPONSE:
Actual monthly AFUDC rates are determined using the methodology shown in the
attached AFUDC rate file. Northern does not have any short-term debt instruments;
therefore, the proration calculation for short-term and long-term debt is not applicable.
As shown in the attached file, Northern first calculates its annual AFUDC rate for the
current year based on its capital structure as of December 31 of the prior year.
Northern’s capital structure is based on its total proprietary capital reported on page
112 of its FERC Form 2 line 14 and the sum of long-term debt also reported on page 112
on lines 17 and 20.
Northern uses an equity rate of 12% for its AFUDC calculation, which is the imputed
return on equity in Northern’s consolidated rate case settlement (Docket Nos. RP03-398
and RP04-155), which was approved by the Commission. Northern’s debt rate is its
weighted average cost of debt per the calculations shown on the attached schedule,
which was 4.961% as of December 31, 2015.
Once Northern has determined its annual AFUDC rate, it uses the formula below to
determine its monthly AFUDC rate, compounded semi-annually.
Monthly AFUDC Rate = [(1+annual AFUDC rate/2)^2^(1/12)]-1
In 2013, the FERC staff audited Northern’s affiliated company, Kern River Gas
Transmission Company, to evaluate Kern River’s compliance with the Commission’s
accounting and reporting requirements for calculating and accruing AFUDC. The final
audit report filed in Docket No. FA13-11-000 contained no audit findings or
recommendations, explaining that the method used by Kern River to determine its
AFUDC rate did not exceed the maximum rate permitted by the Commission nor did it
compound more frequently than semi-annually. The same AFUDC methodology used by
Kern River and audited by FERC staff is used by Northern to calculate and accrue its
AFUDC as described above.
C E R T I F I C A T E OF S E R V I C E
I hereby certify that I have this day sei-ved the foregoing document upon each person
designated on the official service list compiled by the Secretary in this proceeding.
Dated this ^C;^^ day of August 2016.
Michael T. Loeffler
Sr. Director of Certificates
P.O. Box 3330
Omaha, Nebraska 68103-0330
Telephone: (402) 398-7103
Fax: (402)398-7592
VERIFICATION
S T A T E OF NEBRASKA
)
COUNTY OF DOUGLAS
)
Laura Demman, being duly sworn, on oath, states that she is Vice President, Regulatory and
Government Affairs, for Northern Natural Gas Company and is duly authorized to make this
affidavit; that she has read the foregoing Data Response of such Company and is familiar with the
contents thereof; that all the facts therein are tme and correct to the best of her laiowledge,
information and belief.
Signed:
Laura Demman
Vice President, Regulatoiy and Government Affairs
SUBSCRIBED AND SWORN TO, before me this o^'h^
of August 2016.
day
Notary Public in and for
Douglas County, Nebraska
My commission expires: