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Industrials, LDCs Score Big in Curtailment Case

Industrials, LDCs Score Big in Curtailment Case

The D.C. Circuit Court of Appeals on Friday remanded a case in which industrial and LDC customers challenged a FERC-approved method for compensating customers that are curtailed beyond their pro rata share on Texas Eastern Transmission (Tetco). "This was a very good result for us," said an attorney for one of the petitioners.

The court ruled that the Commission in its decision had failed to disclose why it rejected Elizabethtown Gas Division's and the Process Gas Consumers Group/American Iron and Steel Institute's proposed alternatives for being compensated when curtailed above their share on the Tetco system. "If the Commission had grounds to reject petitioners' proposed alternatives, it has not revealed them," wrote Circuit Judge Stephen Williams [Nos. 93-1405, 93-1739].

In a 1993 order, FERC gave Tetco the authority to curtail service - even to firm transportation customers - in "emergency" situations. It called for the customer exempted in emergency situations to later compensate those customers that had been curtailed by more than their pro rata. Specifically, the order required the exempted customer to pay an amount equal to "the aggregate curtailment adjustment quantity" times the reservation charge adjustment for the applicable rate schedule per Dth.

Elizabethtown, an affiliate of NUI Corp., argued that the compensation was inadequate, especially for LDCs. Steeper curtailment during emergencies denies LDCs access to part of their gas supply, it noted, adding that the supply must be re-routed or replaced, often at a much higher cost. It proposed setting compensation either by these actual damage amounts or by a "generic cost" calculated as "a stated percentage in excess of the spot gas price."

The industrial customers took a slightly different approach, arguing that Tetco's compensation scheme instilled the pipeline's customers with the wrong incentives. Since an emergency exemption benefits only customers without backup capabilities (such as "peak shaving" facilities), industrials said the low compensation rate on Tetco allows these customers a "free-ride on the costly contingency preparations of others."

As a remedy, the industrial groups proposed setting curtailment compensation at "a predetermined amount that exceeds the cost of the most expensive gas sources or alternative fuels available to customers."

The Commission rejected both proposals, saying that Tetco's tariff imbalance resolution procedures provided an "adequate remedy" for customers curtailed beyond pro rata for the loss of gas supply. FERC's argument amounts to a "red herring," the court opined.

FERC also argued that neither compensation scheme was "plausible." The court, however, reminded the Commission that it embraced a "compensation device" tied to the spot gas price in a case involving Transcontinental Gas Pipe Line in 1995. "While we recognize that capacity curtailment and supply curtailment are not identical [in both cases], the Commission has nowhere explained why the differences render use of a spot-price solution inappropriate here."

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