FERC fell short of adequately justifying its February 2002 order that rejected Williston Basin Interstate Pipeline’s practice of selective discounting of natural gas transportation services, a federal appeals court said Friday in vacating and remanding the agency’s decision.

The Federal Energy Regulatory Commission held that Williston’s use of selective discounting was “discriminatory, unjust and unreasonable,” and ordered the pipeline to adopt generic discounting policy changes that had been applied to other pipelines. Under selective discounting, an interstate pipeline was given the flexibility to charge different rates to different shippers if certain conditions were met.

Williston Basin challenged the agency’s directive to incorporate the FERC policy changes on selective discounting into its tariff. The pipeline argued that because its system was “reticulated [web-type] rather than a linear pipeline, the…policy [was] harmful both to its shippers and to its system.”

FERC’s “rejection of the pipeline’s objections…must be responsive to the particular concerns raised by the pipeline,” a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit said [No. 02-1257].

But “in this case, the Commission did not adequately address Williston’s concern…that the [policy] would compromise the pipeline’s ability to target discounts at ‘particular receipt/delivery points, subsystems or other defined geographical; areas. Indeed, the Commission did not even mention Williston’s practice of using discounts to manage ‘gas flow movements’ across its system…Nor did the Commission consider whether its policy on selective discounting should be tailored to reflect the complexities Williston claims for its reticulated pipeline system.”

Williston said the Commission “summarily” changed the rules with respect to selective discounting without any consideration to its prior statement that “discount policies on reticulated pipelines need to be evaluated differently than those on straight-line pipelines.”

Williston’s pipeline system is a “‘complex grid or web-like system of numerous sized pipeline segments, ranging from 2 to 16 inches in diameter within its various sections,'” the court opinion noted. FERC discussed the “complexities of Williston’s system” in its order, “but it did not explain why its imposition of the [generic] policy would not impair Williston’s ability to use selective discounting to ensure ‘operational flexibility’ for its reticulated pipeline,” the court said.

Moreover, “the Commission failed to explain what theory supports its conclusion that Williston’s selective discounting, which restricted shippers’ discounts to certain points, ‘unduly restricted competition in the capacity market.”

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