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Court Upholds FERC Action in Equitrans' Rate Settlement Case

A federal appeals court in Washington, DC last Tuesday ruled that FERC acted correctly when it rejected a rate settlement that was supported by the majority of Equitrans LP's shippers in favor of a preexisting settlement that was backed by non-shipper producers.

This issue arose in a 2002 case where Equitrans and Carnegie Interstate Pipeline Co. sought the approval of the Federal Energy Regulatory Commission to merge their two companies. Fearing higher rates, a number of shippers opposed the merger transaction. To quell their concerns, Equitrans proposed a settlement under which it would maintain existing transportation rates until at least March 31, 2005.

But gas producers objected because Equitrans earlier had agreed to file a rate case proposing new rates to take effect no later than Aug. 1, 2003. The producers represented by the Independent Oil & Gas Association of West Virginia (IOGA) insisted on maintaining the initial agreement's rate case filing deadline.

Equitrans' shippers called on FERC to sever IOGA from the proceedings and approve the later settlement, but the Commission refused. ""[R]ejection of this settlement will provide parties assurance that when they bargain to reach a settlement it will not be superseded by a later settlement, notwithstanding their opposition," the agency said at the time.

The jilted Equitrans' customers (Brooklyn Union Gas, KeySpan Energy Delivery New York, et al) challenged the FERC orders in the U.S, District Court of Appeals for the District of Columbia, citing precedent in which the agency severed an objecting party and approved an otherwise undisputed settlement {No. 04-1079]. But the court noted that the Trailblazer II precedent ruling came too late to be pertinent, having been decided nine days after FERC denied rehearing in the Equitrans' case. Moreover, none of the cases cited by shippers, including Trailblazer II, involved the abrogation of any preexisting rate filing obligation, the courts said.

"If FERC's explanation for its action -- that approving the second settlement notwithstanding the first would violate its pro-settlement policy -- makes sense, then the challenged orders were not only justifiable in their own right, but also distinguishable from Commission precedent. We see nothing unreasonable in FERC's decision," the three-judge panel wrote.

"Like FERC, we think it obvious that pipelines and their customers might hesitate to enter rate settlements if a subset of settling parties could later pull the rug out from under them," the court said. "Although petitioners point out that approval of the proposed agreement here could have brought significant benefits such as 'rate certainty' and reduced litigation costs, FERC hardly abused its discretion in holding that a strong commitment to preexisting settlements would better serve the public interest."

Nor, the court said, "did FERC act irrationally in concluding that IOGA had legitimate grounds to insist on the rate filing." The netback pricing concerns give producers a valid interest in transportation rates charged to shippers and consumers, it noted.

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