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Court Affirms FERC Ruling on Columbia Pipe Discount Agreements

A federal appeals court in Washington., DC, Tuesday upheld a FERC order rejecting discount service agreements between Columbia Gas Transmission/Columbia Gulf Transmission and three large local distribution companies.

In 2004, the NiSource Inc. pipelines entered into agreements offering Mountaineer Gas Co., Cincinnati Gas & Electric Co. and Union Light Heat & Power Co. discounted rates, which required them to waive their right to challenge in the future any of Columbia's rates (both for discounted service and nondiscounted service) as unjust and reasonable.

The Federal Energy Regulatory Commission rejected the discount agreements, initially saying that the waivers were inappropriate in discount agreements but could be included only in negotiated rate agreements. FERC then expanded on this argument, saying it objected to the scope of the waivers.

The Commission further said the Columbia pipelines were being discriminatory by offering discount rates to (and extracting waivers from) only its largest customers. It noted this would disadvantage the small customers, which lack the resources to bring Section 5 rate challenges on their own and would be denied the benefit of challenges by the larger discount shippers (who agreed not to bring rate challenges).

The Columbia pipelines challenged the Commission orders, arguing that they were inconsistent with agency precedents and that its rulings were "otherwise arbitrary or capricious."

But the U.S. Court of Appeals for the District of Columbia Circuit denied the pipelines' petition. "We reject these challenges and affirm the Commission's orders," the three-judge panel ruled.

In rejecting the discount agreements, "FERC has articulated a market power rationale that isn't transparently defective and Columbia hasn't marshaled a coherent critique. So we cannot find the Commission's conclusion arbitrary or capricious," the court said.

"Columbia does not challenge FERC's basic theory that the broad Section 5 waivers impede the readiness of large shippers to bring challenges that might also benefit small shippers. To the extent that the agreements at issue here likely operate to the detriment of small shippers at the margin, the Commission's logic [in its orders] is sound," the court noted.

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