A federal court of appeals in Washington, DC, Friday upheld a FERC ruling that permanently lifted the price ceilings on short-term capacity releases of one year or less by shippers but maintained rate ceilings on capacity sales by pipelines (see Daily GPI, June 20, 2008).

The Interstate Natural Gas Association of America (INGAA), which represents interstate natural gas pipelines, and Spectra Energy Partners LP challenged the Federal Energy Regulatory Commission's (FERC) final rule (Order 712) issued in 2008, arguing that the agency was obligated to remove the price ceilings for pipelines as well.

"We conclude FERC's decision to retain price ceilings on pipeline capacity sales is consistent with our decision in [a 2002 ruling involving INGAA] and therefore deny the petitions," said the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit.

INGAA and Spectra "contend the short-term capacity market is a single market and argue that because FERC lifted the price ceilings on one category of market participants (shippers), it had to lift the ceilings for all market participants, including pipelines. Petitioners argue FERC's failure to lift the ceilings for pipeline sales has resulted in impermissible asymmetric regulation.

"Petitioners' argument is based on the flawed premise that FERC must regulate every category of market participant in precisely the same manner...The NGA [Natural Gas Act] authorizes FERC to treat pipelines and shippers differently based on 'reasonable distinctions," the court said.

"FERC offered another important reason for treating pipelines and shippers differently. If pipelines could charge market-based rates in the short-term market, they might withhold construction of new capacity to take advantage of the opportunity to earn scarcity rents in the short-term market."

INGAA and Spectra Energy claimed that Order 712 gave shippers an "unfair competitive advantage" over pipelines, and that the agency ignored the pipelines' economic injuries. "We decline to resolve this issue but note petitioners' argument reinforces the concern that motivated FERC to retain the price ceilings on pipelines. Without the price ceilings in place, pipelines might exercise market power and FERC might be unable to remedy the resulting harm to customers," the court said.

©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.