The D.C. Circuit Court of Appeals on Friday remanded a case inwhich industrial and LDC customers challenged a FERC-approvedmethod for compensating customers that are curtailed beyond theirpro rata share on Texas Eastern Transmission (Tetco). “This was avery good result for us,” said an attorney for one of thepetitioners.

The court ruled that the Commission in its decision had failedto disclose why it rejected Elizabethtown Gas Division’s and theProcess Gas Consumers Group/American Iron and Steel Institute’sproposed alternatives for being compensated when curtailed abovetheir share on the Tetco system. “If the Commission had grounds toreject petitioners’ proposed alternatives, it has not revealedthem,” wrote Circuit Judge Stephen Williams [Nos. 93-1405,93-1739].

In a 1993 order, FERC gave Tetco the authority to curtailservice – even to firm transportation customers – in “emergency”situations, where gas was needed to “avoid irreparable injury tolife or property or to provide minimum plant protection.” It calledfor the customer exempted in emergency situations to latercompensate those customers that had been curtailed more than theirpro rata. Specifically, the order required the exempted customer topay an amount equal to “the aggregate curtailment adjustmentquantity” times the reservation charge adjustment for theapplicable rate schedule per Dth.

Elizabethtown, an affiliate of NUI Corp., argued that thecompensation was inadequate, especially for LDCs. Steepercurtailment during emergencies denies LDCs access to part of theirgas supply, it noted, adding that the supply must be re-routed orreplaced, often at a much higher cost. It proposed settingcompensation either by these actual damage amounts or by a “genericcost” calculated as “a stated percentage in excess of the spot gasprice.”

The industrial customers took a slightly different approach,arguing that Tetco’s compensation scheme instilled the pipeline’scustomers with bad incentives. Since an emergency exemptionbenefits only customers without backup capabilities (such as “peakshaving” facilities), industrials said the low compensation rate onTetco allows these customers a “free-ride on the costly contingencypreparations of others.”

As a remedy, the industrial groups proposed setting curtailmentcompensation at “a predetermined amount that exceeds the cost ofthe most expensive gas sources or alternative fuels available tocustomers.”

The Commission rejected both proposals, saying that Tetco’stariff imbalance resolution procedures provide 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. “Sofar as appears, the imbalance procedures impose no cost oncustomers receiving emergency relief.”

FERC also argued that neither compensation scheme was”plausible.” The court, however, reminded the Commission that itembraced a “compensation device” tied to the spot gas price in acase involving Transcontinental Gas Pipe Line in 1995. “While werecognize that capacity curtailment and supply curtailment are notidentical [in both cases], the Commission has nowhere explained whythe differences render use of a spot-price solution inappropriatehere.”

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