No sooner has El Paso Natural Gas resolved its dispute withSouthern California Edison over the 1996 capacity-turnbacksettlement than another potential threat has cropped up. Last weekthe D.C. Circuit Court of Appeals gave Williams Field ServicesGroup Inc. another bite at the apple to challenge the rates in thecontroversial settlement.

The court vacated and remanded orders in which the Commissiondenied Williams’ request to remove the costs associated with ElPaso’s Chaco compressor station from the pipeline’s transmissionrates in the settlement. Williams made the request after FERC, onrehearing, reversed itself and found the Chaco facilities to benon-jurisdictional gathering. Despite its decision torefunctionalize the Chaco facilities, the Commission in a 1998order refused to upset the settlement and the settlement rates byremoving the Chaco costs.

But “the very settlement that FERC is purporting to respect isno longer settled, so FERC’s justifications [for denying William’schallenge] no longer hold weight,” the appellate court said. In1998, the court remanded the orders approving the 1996 settlementbecause FERC had failed to take into account Edison’s claims as anindirect customer of El Paso. The decision threatened the thesettlement, but was tentatively resolved last August when El Pasoagreed to pay Edison $32 million and make other concessions. Thecourt remand on the 1996 settlement and the El Paso-Edisonagreement are awaiting FERC action.

On top of that, the court has now opened the door for Williams’challenge. “Now that FERC has refunctionalized the Chacocompressor, Williams should be allowed to challenge the settlement.Thus, the order denying Williams consideration of its claims isvacated.”

The effect of the court’s decision “is that all of the issuesraised by Williams need to be consolidated along with thesettlement docket. So while it doesn’t actually threaten thesettlement, it will make it more difficult for the Commission toapprove the settlement because it will have to deal with moreissues,” a lawyer close to the case said.

In a related matter, the court also vacated and remanded FERCdecisions that would allow for adjustments to fuel charges based onthe refunctionalization of the Chaco facilities. FERC reasoned thatthese costs could be adjusted because, unlike the transmissionrates, they were not part of the El Paso settlement. Majorproducers (Indicated Shippers) contested the Commission’s decision,arguing that certain provisions in the settlement – which FERCapproved – precluded such adjustments.

And the court seemed to side with Indicated Shippers. “Giventhese provisions, it is not clear that FERC could adjust the fuelcharges with that settlement in place…..As an initial matter, wenote that FERC’s interpretation of the settlement is questionable.”

On remand, if the Commission should keep the settlement intact,Williams would lose and probably appeal. But if it should modifyit, Indicated Shippers then would probably appeal it. “So I thinkone thing you can say is there probably will be more litigation. Ithink it’s going to complicate things for the Commission on thesettlement,” the lawyer noted.

The court recommended that the Commission “consolidate all theserelated matters to reach a single, coherent disposition of theoutstanding issues” pertaining to the settlement. “Obviously FERCcannot simply rubber-stamp this new settlement withoutreconsidering the issues raised by the parties in this case.

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