A federal appeals court in Washington, DC has rejected a shipper challenge to three FERC orders that allowed Transcontinental Gas Pipe Line Corp. to roll in the construction costs of several East Coast expansion projects in its general rate base. The agency orders required all Transco shippers to pay the project construction costs — not just those who would benefit directly from the expansions.

Consolidated Edison Co. of New York and other Transco shippers asked the court to vacate the three 1999 orders on the grounds that the Commission had applied the wrong pricing policy in reviewing the projects. Instead of using its 1995 policy statement that favored rolled-in pricing of pipeline expansions, they argued FERC should have applied its 1999 policy statement that showed a preference for incremental pricing, which would limit the recovery of construction costs strictly to those customers who would benefit from the new facilities [No. 01-1345].

The 1999 policy change significantly raised the bar for interstate natural gas pipelines seeking to construct new projects by requiring that the proposed facilities be able to stand on their own financially.

In petitioning the court, Transco shippers argued that FERC was obliged to apply the 1999 policy statement favoring incremental pricing because it was issued while the Transco expansion case still was pending at the Commission. “We disagree,” said the U.S. Court of Appeals for the District of Columbia Circuit in its decision on Friday.

“The application of a newly adopted policy statement to a pending case is not presumed unless the policy change has the ‘force of law.’ When an agency issues a policy statement that is not binding and merely signals how the agency may handle future cases, there is no legal principle that mandates retroactive application of the new policy statement to pending cases. Retroactive application to pending cases may be permissible, but it is not required,” the three-judge panel wrote in its 10-page opinion.

“We hold that FERC did not act unlawfully in applying its 1995 policy statement when it resolved Transco’s proposal to implement rolled-in rates,” and “we hold that FERC sufficiently explained its reasons for relying on the 1995 policy statement (rather than the 1999 policy statement) to evaluate the rate change proposal.”

In September 1999, FERC voted to apply incremental pricing to all pipeline project applications that were filed from July 29, 1998 forward. The Transco expansion projects were submitted to the Commission before that cut-off point, making them eligible to roll in construction costs so long as their existing customers’ rates would not increase by more than 5% as a result.

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