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Challenges to Negotiated-Rate Policy, Orders Denied

August 10, 1998
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Challenges to Negotiated-Rate Policy, Orders Denied

Ruling that the case was not yet ripe for review, the D.C. Circuit Court of Appeals has denied challenges to FERC's policy statement and subsequent orders that gave interstate gas pipelines permission to enter into negotiated rates with their customers.

Burlington Resources Oil &amp Gas Co. et al petitioned the court to review FERC's 1996 policy statement on alternative pricing methods, arguing that it was "aggrieved" by the Commission's action. It further claimed the policy was, in fact, a rule, and that FERC in promulgating it did not follow the required notice-and-comment procedures [No. 96-1160 et al.].

Separately, the Northern Municipal Distributors Group et al took issue with five orders that awarded pipelines the authority to negotiate rates. The LDCs argued that, by allowing negotiated rates to take effect with only a one-day suspension, the Commission abdicated its statutory responsibility under Section 5 to review filed rates, and unlawfully put customers in the position of having to prove that a rate was unreasonable [No. 96-1455 et al]. The cases were consolidated by the appellate court for the purpose of review.

"The legal significance of the case is in the reviewability of a policy statement. It reaffirms that a policy statement is not appealable," said Lorraine Cross of the Interstate Natural Gas Association of America. "As a policy matter, I don't think that you could read into it one way or another whether the court would uphold negotiated rates."

The court agreed with FERC's position that neither group of petitioners was aggrieved by the policy statement and/or subsequent orders, and that neither challenge was ripe for review. For a party to prove it is aggrieved, it must show that an order causes it concrete injury, actual or imminent, the court said.

"Burlington does not meet any of these conditions. Burlington points to no injury, concrete or otherwise, that is in any way actual or imminent. The rates that [it] pays have not changed - nor, indeed, did anything concrete change by virtue of the policy statement alone. Each potential problem on Burlington's list is entirely speculative," the court wrote in an eight-page decision.

"Further, even assuming that Burlington would surely be harmed if negotiated rates were in use, the policy statement does not approve any such rate. The policy statement does not even approve any particular proposal to negotiate a rate, let alone any actual negotiated rate; rather, it simply indicates the Commission's willingness to accept proposals from pipelines seeking to negotiate rates - if they meet the guidelines laid out in the policy statement." Consequently, FERC's policy statement by itself is not fit for judicial review, the court noted.

Even if the court were to review specific orders that arose from the policy statement, "we would still not have enough information about the effect of the policy. None of the orders sheds additional light upon how the negotiated-rate policy will operate in fact," the court opined. To date, only seven pipelines have used their authority to enter into a negotiated-rate contract, and - "so far as we know" - FERC has approved at least one such negotiated deal involving NorAm Gas Transmission, it said. The court has delayed its review of that case pending the outcome of this case.

Citing many of the same reasons, the court also rejected the challenges of the municipal distributors to five orders that awarded pipelines permission to negotiate rates. "...[N]one of the orders says enough about the real-world consequences of the policy to illuminate it sufficiently for review."

Susan Parker

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