Court Remands Decision on Transco's FTW Rates
The U.S. Court of Appeals for the District of Columbia last week
reversed and remanded a FERC order rejecting Transcontinental Gas
Pipe Line's bid to levy two-part, "firm-to-the-wellhead" (FTW)
rates on certain production-area customers served by the line.
At issue was whether Transco's "conversion shippers," which were
guaranteed "high priority" interruptible service ("essentially"
firm) on the pipeline's production laterals at one-part IT rates
under a 1991 settlement, should pay a two-part firm rate for the
service --- a reservation charge for the right to use the service,
and a usage charge covering the costs of actual usage.
The "conversion customers" are firm sales customers in the
downstream areas served by Transco, who upon unbundling in the
early 1990s, were allowed to convert their "gas purchase
entitlements" into transportation service rights on Transco's
laterals, which connect their gathering systems to the pipeline's
Indicated Shippers, led by Exxon Corp., supported Transco's
request for the FTW rates, but the Commission denied it in 1997 on
the grounds that such rates would represent an abrogation of the
contracts of the "conversion customers" under the 1991 settlement.
Indicated Shippers, which also are producers in Transco's
production areas, petitioned the court to review the Commission's
decision shortly thereafter.
"...[W]e are puzzled by the Commission's insistence, in the
opinions under review and its brief here, that Transco's filing was
inherently an 'abrogation' of the contracts," wrote Judge Stephen
F. Williams for the majority. Given that the conversion customers'
contracts with Transco contained Memphis clauses, which permit
pipes to secure rate changes through Section 4 filings, "where is
the 'abrogation'?" the court asked.
Moreover, the court said it was hard-pressed to understand
FERC's "resistance" to a two-part, straight-fixed-variable (SFV)
rate for the "conversion customers" following Order 636. It's
"especially odd in light of [the Commission's] aggressiveness in
shifting pipelines with two-part rates from MFV [modified fixed
variable] to SFV," it noted. "The Commission's opinions in this
case do not explain why Order 636's principles are not at play here
on the side of the Indicated Shippers."
In the end, "we find no reasoned decisionmaking to support the
Commission's rejection of Transco's [Section 4] filings" for FTW
rates, the court said. However, it pointed out that if FERC should
justify its decision on remand, the prospect for any kind of relief
for Indicated Shippers under Section 5 would be "remote."
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