The D.C. Circuit Court of Appeals last week upheld two orders inwhich FERC denied a small-customer discount transportation rate toNephi, UT, a municipal distribution customer on Questar Pipeline.

The Commission took this action based on Order 636, whichrequired pipelines to preserve discount rates for small customersthat were receiving such service on May 18, 1992 in an effort toshield them from significant rate increases resulting from theswitch to straight-fixed variable (SFV) rate design [No. 93-1663].Questar Pipeline, however, did not have discount rates in effectfor Nephi or any other small customer on its system on May 18, 1992- when Order 636 took effect, FERC pointed out, thus disqualifyingthe Utah distributor from being eligible for a small-customerdiscount rate post-Order 636.

Under Order 636, the Commission also mandated that pipelinesemploy mitigation measures – such as enlarging their class ofcustomers eligible for existing small-customer rates – in caseswhere the transition to SFV rates resulted in an increase of 10% ormore for any particular class of customers. Nephi, however, failedthis test, FERC found, noting that the shift to SFV rates wouldcause its costs to increase by no more than 3.5%.

The appellate court sided with FERC on both points. “BecauseOrder 636 only requires the grandfathering of existing,small-customer discount rates and Questar never offered such a rateprior to Order 636, and because Nephi failed to show that its costincrease would trigger mandatory mitigation under Order 636…, wedeny in part and dismiss in part [Nephi’s] petition,” it opined.

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