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Court Remands Decision on Transco's FTW Rates

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 main line.

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."

Susan Parker

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