In the wake of a recent court ruling overturning FERC on a keyissue in the El Paso Natural Gas rate settlement, the Commissionyesterday in an unrelated case spelled out the standards andprocedures it follows in settlement cases where contested issuesare raised.
FERC’s action was largely in response to industry requests forreconsideration of an October order involving a TrailblazerPipeline rate settlement. Several parties argued that theCommission in that decision had adopted a new policy for contestedsettlements – one that favored ruling on contested settlement itemsseparately rather than reviewing a contested settlement as a wholepackage [Rp97-408-004].
Following the Trailblazer order in October, “it appears therewas concern and some amount of confusion in the industry about howthe Commission was treating contested settlements,” a FERC staffmember said. In fact, some asserted that the Commission had “raisedthe bar” with respect to its evaluation of contested agreements.
Interestingly, the Trailblazer order was issued only a few daysafter the D.C. Circuit Court of Appeals remanded El Paso’s ratesettlement for further review, citing as its reason theCommission’s refusal to sever Southern California Edison (Edison)from the proceeding based on its status as an indirect customer ofthe pipeline. Edison, which contested the settlement, purchasescapacity indirectly from El Paso through Southern California Gas(SoCalGas). The appellate court ruled that FERC’s denial ofseverance to Edison, which would have enabled the utility to pursueon its own the settlement issues that it contested, violated bothcourt precedent and Commission precedent. In short, it held thatindirect customers, such as Edison, had just as much right tocontest pipeline settlements as did direct customers.
As a result, “what they [FERC] are confronted with now is acourt-mandated determination that the rights of indirect customershave to be recognized, and if genuine issues of material fact havebeen raised, the Commission is going to have to address thoseissues” in the El Paso settlement, said Kevin Lipson, a WashingtonD.C. attorney for Edison. He believes the court ruling “castsconsiderable doubt on the continued validity of the underlying ElPaso settlement.”
Although FERC said in the Trailblazer order that the courts havegiven it “broad discretion” to deal with contested settlements, itconceded it has been reversed in cases “where the court found thatthe Commission did not give sufficient consideration to theinterests of the contesting parties, even if the settlement hadwide support and there was only one or very few contestingparties.” Both the El Paso and Trailblazer settlements have enjoyedwide support from customers, and generally were contested by onlyone party – Amoco Production in Trailblazer’s case and Edison in ElPaso’s case.
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