Any questions regarding this filing should be directed to the undersigned at (402)

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1 Northern Natural Gas Company P.O. Box 3330 Omaha, NE November 13, 2018 Via efiling Ms. Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C Re: OEP/DPC/CB-1 Northern Natural Gas Company Docket No. CP (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, its responses to the data request issued by FERC staff November 8, FERC s requests and Northern s responses are attached. Any questions regarding this filing should be directed to the undersigned at (402) Respectfully submitted, /signed/ Michael T. Loeffler Michael T. Loeffler Senior Director, Certificates and External Affairs cc: Parties of Record

2 Docket No. CP Northern Natural Gas Northern Lights 2019 Rochester Expansion 1. In Exhibit K, Northern Natural Gas Company estimates total capitalized Allowance for Funds Used During Construction (AFUDC) to be $5,777,973. Please provide the following in Microsoft Excel: (The worksheets and/or files should retain all notes and any formulas supporting the calculation.) i. The worksheet computations on a monthly basis to support the $5,777,973 of AFUDC. Separately identify the debt/equity components. RESPONSE: For the purpose of estimating, Northern calculates AFUDC as a percentage of the total project estimate based on historical comparable 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. See Exhibit 1 found on the first tab of the attached Excel file for details on how estimated AFUDC reported on Exhibit K was determined for the Northern Lights 2019 Expansion Project and the Rochester Project. 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 payment s including AFUDC plus one half of the current month payments. See Exhibit 2 on the second tab of the attached Excel file for a demonstration of the calculation used to determine actual AFUDC charged to the Northern Lights Faribault Unit No. 3 compressor project through October 2018 based on the formula provided below. AFUDC base = Prior month project to date payments & AFUDC + ½ (current month 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 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.

3 Docket No. CP Northern Natural Gas Northern Lights 2019 Rochester Expansion RESPONSE: This same methodology of calculating monthly AFUDC will be applied to all components of the Northern Lights 2019 Expansion Project and the Rochester Project. ii. The computation and methodology to support the debt/equity cost rates used to derive the AFUDC rate. The worksheets and/or files should retain all notes and any formulas supporting the calculation. Actual monthly AFUDC rates are determined using the methodology shown on 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 on Exhibits 3 and 4, 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 15, 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 from Northern s consolidated rate case settlement (Docket Nos. RP 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 Exhibits 3 and 4, which was 4.961% as of December 31, 2016 and 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 sister 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. FA contained no audit findings or recommendations. The Commission further explained 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. In , the FERC staff audited Northern to determine compliance with the Commission s account and reporting requirements, which included AFUDC among other Accounting topics. Although the final audit report has not yet been issued, in an exit interview with FERC Staff there were no issues mentioned in regard to AFUDC calculations made by Northern during the audit period.

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