Court Upholds Order 636 Rate Decision
The D.C. Circuit Court of Appeals has upheld FERC's decision
denying a small-customer discount transportation rate to Nephi, UT,
a municipal distribution customer on Questar Pipeline, in the
aftermath of the gas restructuring order.
The Commission took this action based on Order 636, which
required pipelines to preserve discount rates for only small
customers that were receiving such service on May 18, 1992 in an
effort to shield them from significant rate increases resulting
from the switch to straight-fixed variable (SFV) rate design [No.
93-1663]. Questar Pipeline, however, did not have discount rates in
effect for Nephi or any other small customer on its system on May
18, 1992 - when Order 636 took effect, FERC pointed out, thus
disqualifying the Utah distributor from being eligible for a
small-customer discount rateat that time.
Under Order 636, the Commission also mandated that pipelines
employ mitigation measures -- such as enlarging their class of
customers eligible for existing small-customer rates -- in cases
where the transition to SFV rates resulted in an increase of 10% or
more for any particular class of customers. Nephi, however, failed
this test, FERC found, noting that the shift to SFV rates would
cause its costs to increase by no more than 3.5%.
The appellate court sided with FERC on both points. "Because
Order 636 only requires the grandfathering of existing,
small-customer discount rates and Questar never offered such a rate
prior to Order 636, and because Nephi failed to show that its cost
increase would trigger mandatory mitigation under Order 636..., we
deny in part and dismiss in part [Nephi's] petition," it opined.
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