The D.C. Circuit Court of Appeals last week remanded orders in aPanhandle Eastern Pipe Line case that it says marked a cleardeparture from FERC’s established policy on pipeline interconnectswithout providing any justification for the action.

Panhandle challenged the 1997 orders because it said they”conflicted with or changed” the Commission’s long-held policyrequiring pipes to build interconnects only when they hadconstructed them for similarly situated parties in the past. FERC,on the other hand, said it hadn’t ordered Panhandle to build aspecific interconnect, but merely required the pipeline to makesome changes to its tariff provisions on interconnects [No.98-1048].

At issue were orders that directed Panhandle to buildinterconnects for “any party willing to pay the reasonable costsand expenses of the construction and who meets the other conditionsof Panhandle’s interconnect construction policy as modified by theCommission.” The FERC modifications are what led to the courtchallenge.

Specifically, FERC eliminated provisions in Panhandle’s tariffrequiring a party seeking an interconnect to: 1) be a shipper; 2)demonstrate the existence of “market demand commensurate with thefacility requested;” and 3) show that the construction of aninterconnect will not result in “adverse economic impact toPanhandle.” Panhandle insisted these tariff changes amounted to ashift in the Commission’s interconnect policy, and the courtagreed.

“FERC’s argument fails to persuade us that it has not changedits policy,” the appellate court opined. “…..[W]ere we to upholdFERC’s orders, Panhandle would be bound to construct aninterconnect for any [requesting party] falling within itsFERC-modified tariff, even if the requester were notsimilarly-situated to any party for whom Panhandle had previouslybuilt an interconnect. That constitutes a clear change in FERC’spolicy,” it said.

“FERC may well be able to defend its new policy. The orders…,however, neither acknowledge the change nor explain itsrationale…..As we have repeatedly reminded FERC, if it wishes todepart from its prior policies, it must explain the reasons for itsdeparture.”

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