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FERC Upholds Rollin-in Rates for Great Lakes Gas

Fortnightly Magazine - July 1 1996

The Federal Energy Regulatory Commission (FERC) has issued its rehearing order for Great Lakes Gas Transmission Ltd. Partnership (GLGT), upholding its July 26, 1995, order allowing GLGT to roll in the costs of expanding its natural gas pipeline facilities (Docket Nos. RP91-143-030 et al.).

The July 26 order was issued on remand from the U.S. Court of Appeals for the D.C. Circuit, reversing a 1991 order allowing incremental pricing. The case arose when GLGT spent over $700 million to expand its pipeline system. At issue: the rates for service on the new capacity created by four of five separate expansion projects.

In the July 26 order, the FERC cited Battle Creek Co. v. FPC, 281 F.2d 42 (D.C.Cir. 1960), which allows rolled-in rates whenever the expanding pipeline can show that its new facilities would be integrated into the mainline system and would confer some positive benefits on all customers. In 1991, however, the FERC used a "commensurate benefits" test, finding that the expansion facilities should be priced incrementally. Thus, to justify rolled-in rates, GLGT would have had to show that systemwide benefits to existing customers were commensurate with any increase in rates to those same customers.

Texas Eastern disagreed with the July 26 order, arguing that the FERC had followed the wrong precedent. Texas Eastern noted that in the years since issuance of the Battle Creek test, the FERC had been confronted by an increasing number of cases in which interpreting theoretical and minimal benefits as actual benefits to systemwide customers led to inequitable results. It added that the FERC had never faced an expansion causing such a high rate hike, making the GLGT case one of first impression.

The FERC rejected those arguments, relying on the court's decision in TransCanada PipeLines Ltd. v. FERC, 24 F.3d 302 (D.C.Cir. 1994), which found that all mainline facilities benefit all customers, even when certain facilities are added to increase mainline capacity to serve a particular customer.

Chair Elizabeth A. Moler alone dissented. She had also dissented from the July 26 order, claiming that the decision to enter new markets should not be subsidized by shippers that do not use the facilities, and that expansion shippers on average would experience a 66-percent rate hike while deriving almost no benefit from the expanded system. (em LB

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