A federal appeals court in Washington, DC, Friday upheld a FERC decision rejecting North Baja Pipeline LLC's proposed formula for sharing with shippers the costs of force majeure interruptions on its system, as well as the pipeline's proposal to include scheduled maintenance as a force majeure event.
"Although North Baja has capably advanced its arguments to this court, we find FERC's decisions reasonable and reasonably explained for purposes of our deferential review...We therefore deny North Baja's petition," the U.S. Court of Appeals for the District of Columbia Circuit said in a nine-page ruling.
In an October 2004 filing, North Baja Pipeline proposed that shippers would receive no refund for the first 10 days of a force majeure. And if the service interruption lasted longer than 10 days, shippers would receive a percentage refund for each additional day that the pipeline was out of service. FERC ruled that North Baja's proposal was a hybrid of the pipeline-favorable aspects of two other policies involving Texas Eastern Transmission and Tennessee Gas Pipeline, and did not meet the agency's standard of fair cost-sharing between pipelines and shippers.
The Texas Eastern policy called for shippers to receive no refund for the first 10 days of an interruption, but to receive a full refund for any days beyond that. The Tennessee policy provided shippers with a percentage refund for the entire period of an interruption.
The Texas Eastern and Tennessee cost-sharing formulas "incorporate a careful balancing of risk between shippers and pipelines," the appeals court said. But the problem with North Baja's proposal is that it "effectively cherry-picked the most pipeline-favorable aspects of each formula by combining Texas Eastern's 10-day, no-refund period with Tennessee's percentage refund."
The court also agreed with the Federal Energy Regulatory Commission's conclusion that events within North Baja's control -- such as scheduled maintenance -- were not force majeure events. "In Opinion 406...the Commission defined force majeure events as events that are not only uncontrollable, but also unexpected," the judges wrote. And while "some scheduled maintenance interruptions may be uncontrollable, they certainly are not unexpected. There is nothing unreasonable about FERC's policy."
The North Baja Pipeline, which is owned by TransCanada Corp., is the 80-mile U.S. leg of a larger pipeline that primarily serves electric generation load in the Mexican state of Baja California.
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