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FERC Orders High Island Offshore to Pay Refunds of About $15.6M, Plus Interest

The Federal Energy Regulatory Commission last week ordered High Island Offshore System (HIOS) to refund charges, along with interest, that have been collected since a transportation rate hike went into effect on its system in July 2003. Agency staff estimated that shipper refunds will amount to about $15.6 million, excluding interest.

The Commission rejected a proposed rate settlement by HIOS, which would have paid Indicated Shippers $3 million in recognition of their active participation in the rate case, but would have offered no refunds for the period that the higher rates on its offshore pipeline system were in effect. The agreement also proposed to return shipper rates to the level that they were before the rate case (12.44 cents/Dth).

In December 2002 HIOS, which operates a three-pronged pipeline system in the Gulf, proposed raising its firm transportation long-haul volumetric rate and authorized overrun rate to 16.16 cents/Dth and its interruptible long-haul rate to 17.59 cents/Dth. FERC in January 2003 accepted and suspended the tariff sheets to be effective July 1, 2003, subject to refund and the outcome of an administrative law judge (ALJ) hearing.

In April 2004, the ALJ ruled that HIOS' rates for long-haul firm and interruptible service should be 8.56 cents/Dth, which is significantly lower than the 12.44 cents/Dth rates that HIOS proposed in its settlement. The Commission generally affirmed the ALJ's decision.

Commission staff and ExxonMobil opposed the settlement. "While the settlement may represent a reasonable bargain from the viewpoint of Indicated Shippers, those shippers account for less than 20% of HIOS' total throughput," a FERC staff member said in an affidavit submitted to the Commission. Staff contends that the proposed settlement is "unreasonable and unduly discriminatory" with respect to the remaining shippers, who account for over 80% of the throughput on HIOS.

The agreement "denies the remaining shippers any share of refunds for the period during which HIOS' proposed rate increase was in effect," staff said. It estimated that $15.6 million was owed to these HIOS shippers.

Staff further noted that the HIOS settlement provides for a transportation rate of 12.44 cents/Dth, "approximately 50% above the ALJ's determination of a just and reasonable rate" on the HIOS system, which is fully owned by GulfTerra Energy Partners LP.

"We generally affirm the ALJ and find on the merits that just and reasonable rates for HIOS are substantially below the level of the settlement rates," the FERC order said [RP03-221].

The Commission order also took issue with the fact that while Indicated Shippers will receive $3 million under the settlement, other shippers "will receive no refunds for the period of about a year and half when rates were in effect that are substantially in excess of the level that we find to be just and reasonable."

In the end, "the Commission is unwilling to sanction such an arrangement in the circumstances of this case, where we find that the settlement rates are substantially higher than just and reasonable rates, and the settlement provides no refunds to the other parties who have paid rates at twice the just and reasonable level for a significant period," the order said.

FERC ordered HIOS to pay refunds, plus interest, to its shippers within 30 days of the Jan. 24 order.

Commissioner Nora Brownell dissented in part from the FERC majority. "The majority imputes some nefarious intent to HIOS and Indicated Shippers and concludes that the Commission cannot assume that Indicated Shippers have negotiated a settlement that is in the interest of other, inactive parties. I would characterize the agreement between HIOS and Indicated Shippers as simply a good business decision between two aggressive litigants."

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