In a key ruling Friday, a federal appeals court in Washington, DC, vacated a FERC order that imposed new natural gas quality and interchangeability standards on gas entering Florida Gas Transmission’s (FGT) market area, primarily Florida, from the western end of the pipeline (see Daily GPI, April 13, 2006).

In the same decision, the court upheld a 2007 order by the Federal Energy Regulatory Commission (FERC) against establishing a mechanism in interstate pipeline tariffs that would provide for recovery of costs for testing, remediation and repair that may be necessary to accommodate the introduction of revaporized liquefied natural gas (LNG) into FGT’s pipeline system that meets the approved standards for gas quality and interchangeability (see Daily GPI, April 20, 2007).

FGT challenged the “geographic scope” of the new standards in the order, which imposed new standards on gas in FGT’s market area, but also on the commingled stream of natural gas already flowing through the FGT system where it enters the market area from the pipeline’s western leg, which begins at the Alabama-Florida state line.

FGT sought approval of its proposed LNG-related standards for only its eastern leg. The FGT pipeline is jointly owned by CrossCountry Energy and El Paso Corp., and its system extends from South Texas to south Florida.

“Despite a complete lack of evidence that [FGT’s] Western Division gas caused operational problems, the Commission determined that the new standards would apply to natural gas flowing from the Western Division where it entered the market area. Florida Gas argues that the Commission did not make the requisite findings to support this decision. We agree,” said a three-judge panel with the U.S. Court of Appeals with the District of Columbia Circuit.

“The Commission explicitly found that there was no evidence that Western Division gas had ever caused problems in the Western Division or the market area. Thus the Commission had no Section 5 authority to impose the new standards on gas flowing from the Western Division into the market are,” the court said.

The court called FERC’s decision “arbitrary, capricious and not in accordance with law.” It thus granted Florida Gas’ petition and vacated the Commission’s orders that imposed new standards on gas from FGT’s western leg entering into its market area.

The case stemmed from a complaint filed in April 2004 in which AES Ocean Express accused FGT of imposing overly restrictive gas quality/interchangeability requirements on AES Ocean in its effort to obtain an interconnection with FGT. AES Ocean claimed that FGT’s “onerous” conditions were frustrating its plans to construct the Bahamas-to-Florida pipeline to deliver regasified LNG to the southern Florida market. — a project that has never been realized.

The court rejected Florida Power & Light’s challenge to FERC’s decision for not establishing a mechanism for the recovery of mitigation costs. In justifying its action, FERC “asserted that it lacked jurisdiction to require non jurisdictional parties (LNG suppliers and shippers) to reimburse mitigation costs incurred by other non jurisdictional parties (electric generators and local distribution companies),” and it “maintained that it had already considered end-user mitigation costs in developing the new standards and consequently adopted standards that would not impose excessive mitigation costs.”

The judges said they “[found] the Commission’s jurisdictional rationale convincing. The Commission has no direct jurisdiction over the parties from which Florida Power seeks compensation. And the Commission cannot use its Section 7 conditioning power to exercise direct control over non jurisdictional parties.

“Even assuming the Commission had jurisdiction to establish a cost-recovery mechanisms, as Florida Power contends, it [FERC] provided an adequate alternate rationale for refusing to establish any cost-recovery mechanism. In short the Commission explained that it already addressed the mitigation cost issue by adopting new interchangeability standards that would not impose excessive costs on electric generators. This explanation provides an independent justification for the Commission’s decision to eschew any cost-recovery mechanism. Thus the Commission has adequately explained its reasons for refusing to establish a cost-recovery mechanism for en-user mitigation costs,” the court said.

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