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Process Gas Consumers Gain Ground in Pipeline Rate Cases

Natural gas pipelines serving traditional long-line routes to market have begun filing for new rate hikes of up to 500% in an attempt to make up for the load lost to locally delivered shale gas, Dena Wiggins, counsel to the Process Gas Consumers Group (PGC), told a membership meeting Thursday.

PGC believes this is only the tip of the iceberg and the group has been preparing for the battles ahead.

The industrials group and other shippers' organizations will be able to more easily intervene to fight the rate hikes thanks to a significant ruling that PGC won recently in a FERC rate case filed by the offshore Stingray Pipeline, which is seeking an across-the-board increase of up to 500%. Stingray operates in the Gulf of Mexico and comes ashore in Louisiana, where it interconnects with several downstream pipelines -- ANR Pipeline, Natural Gas Pipeline Co. of America and Tennessee Gas Pipeline.

The Federal Energy Regulatory Commission (FERC) granted a PGC motion to intervene in the Stingray Pipeline Co. LLC rate case (RP11-1957) without ordering PGC to identify its members with interest, as Stingray had requested. FERC simultaneously granted a similar motion by the American Forest & Paper Association (AF&PA).

This decision is expected to profoundly affect the standing of shipper membership organizations in FERC proceedings, said Wiggins, a partner with the Washington, DC-based law firm of Ballard Spahr LLC. The Commission also acknowledged, in its April 29 order granting the motions, that a consumer who takes gas downstream from a pipeline clearly has an interest; the consumer need not ship gas on the pipeline to participate in the proceeding with full party status.

In prior cases before administrative law judges, pipelines have succeeded in demands that membership organizations identify their members with interest in a case. Organizations have then often had to fight exclusion when their members with interest also intervene, spurring pipelines to argue that the organization should not be allowed to intervene because it has members intervening on their own behalf.

Further, pipelines have often insisted that membership organizations name all their members that may have an interest in the case. For organizations with hundreds of members, this has been a near-insurmountable task, as they had to investigate each member to determine its interest.

The decision by the Commission takes the issue out of the law judges' hands.

"This is a tremendous victory for membership organizations and for consumers," Wiggins said. "It clears the path to FERC's door." It will be particularly important for shippers' groups to be heard in the cases for new higher transportation rates that the pipelines are seeking to make up for lost load. So far, Stingray, Tennessee and Columbia Gulf have filed new rate cases.

The pending Stingray and Tennessee Gas Pipeline rate cases "raise some interesting questions that FERC will have to grapple with," Wiggins said. Specifically, what does the Commission do about this -- the shrinking capacity usage in long-line pipelines from the Gulf of Mexico -- "when you have legitimate changes in the flow patterns" of these pipelines due to shale gas, she told NGI.

Wiggins said she believes FERC should tackle this "relatively new issue" on a generic basis, rather than on a case-by-case basis.

"FERC is setting policy in these cases," Wiggins said. Not all pipelines are seeking across-the-board hikes, Jack N. Semrani, also with Ballard Spahr representing PGC, explained. In the case of Tennessee it is different for different portions of the pipe. Tennessee is experiencing significant reduction in gas flows on the Southwestern portions of its line because not as much gas flows from that area to feed the Northeast, which now has locally grown Marcellus Shale gas and supplies from the Rockies Express pipeline.

However, in the Northeastern part of its line, shippers say Tennessee is running close to full. Although Tennessee's rates are increasing for all of its customers, shippers transporting within the Northeast are seeing higher increases due to higher demand, Semrani added.

According to the November 2010 FERC order accepting and suspending Tennessee's tariff proposal, New England local distribution companies contend that they face rates that are more than double Tennessee's existing rates, and in one instance they could face an increase of up to 123%. The tariff proposal is suspended until June 1, subject to refund and the outcome of a hearing [RP11-1566].

Stingray had argued that the PGC and AF&PA motions to intervene should be denied because they do not have a direct interest in the case, they must name their members with interest, and they have not shown that their participation is in the public interest. The membership organizations, through their Ballard attorneys, responded that FERC precedent does not require them to name members with interest, having members who are consumers on downstream pipelines that interconnect with Stingray constitutes a clear and direct interest, and FERC should be allowed to hear the views of industrial consumers in this case. As a result, FERC issued its order favoring the membership organizations.

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