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Court Upholds Order 636 Rate Decision

July 6, 1998
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Court Upholds Order 636 Rate Decision

The D.C. Circuit Court of Appeals has upheld FERC's decision denying a small-customer discount transportation rate to Nephi, UT, a municipal distribution customer on Questar Pipeline, in the aftermath of the gas restructuring order.

The Commission took this action based on Order 636, which required pipelines to preserve discount rates for only small customers that were receiving such service on May 18, 1992 in an effort to shield them from significant rate increases resulting from the switch to straight-fixed variable (SFV) rate design [No. 93-1663]. Questar Pipeline, however, did not have discount rates in effect for Nephi or any other small customer on its system on May 18, 1992 - when Order 636 took effect, FERC pointed out, thus disqualifying the Utah distributor from being eligible for a small-customer discount rateat that time.

Under Order 636, the Commission also mandated that pipelines employ mitigation measures -- such as enlarging their class of customers eligible for existing small-customer rates -- in cases where the transition to SFV rates resulted in an increase of 10% or more for any particular class of customers. Nephi, however, failed this test, FERC found, noting that the shift to SFV rates would cause its costs to increase by no more than 3.5%.

The appellate court sided with FERC on both points. "Because Order 636 only requires the grandfathering of existing, small-customer discount rates and Questar never offered such a rate prior to Order 636, and because Nephi failed to show that its cost increase would trigger mandatory mitigation under Order 636..., we deny in part and dismiss in part [Nephi's] petition," it opined.

Susan Parker

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