The Federal Energy Regulatory Commission (FERC) has issued an order denying rehearing, effectively allowing Mojave Pipeline Co. (MP) to construct and operate its Northward Expansion Facilities in California (Docket No. CP93-258-007). The FERC has already issued five substantive orders in the proceeding.

Especially contentious was the clash with the California Public Utility Commission (CPUC) over jurisdiction, leading to a February 1995 FERC order holding that the Northward Expansion was an interstate pipeline subject to federal oversight. To support its finding, the FERC cited a District of Columbia Circuit Court ruling that gas commingled with other gas flowing in interstate commerce becomes interstate gas [Oklahoma Natural Gas Co. v. FERC, 28 F.3d 1281 (D.C. Cir. 1994)].

This time around, Pacific Gas & Electric Co. (PG&E) argued that the FERC's interpretation of the Natural Gas Act's (NGA) local distribution exception was irreconcilable with its recent Notice of Proposed Rulemaking on electric industry restructuring (Mega-NOPR). PG&E claimed that the FERC should adopt a "primary function" test to distinguish local distribution from interstate transmission.

The FERC declined, noting that the Energy Policy Act of 1992 specifically prohibits the FERC from ordering retail access, and that the Mega-NOPR's local distribution definition was developed with that in mind. It added that the Natural Gas Act includes no such prohibition regarding interstate pipelines.

Another issue in the Mojave case concerned the FERC's contract-demand reduction policy. The FERC's August 4, 1995, order did not condition Mojave's certificate on any requirement that the pipeline's parent, El Paso Natural Gas Co., reduce contract demand from PG&E or Southern California Edison (SCE). That decision was based on a finding that El Paso would not collect reservation charges twice for firm capacity. The FERC added that PG&E and SCE had not established a direct nexus between the load they might lose once the Northward Expansion is operational, and their existing firm capacity on El Paso.

The local distribution companies (LDCs) strongly disagreed with the FERC. PG&E argued that contract-demand relief is necessary because pipelines generally have an unfair competitive advantage over LDCs in providing service to large load customers. SCE argued that present market conditions give El Paso double recovery because it would collect demand charges from SCE at the same time it sells interruptible capacity. Associated Gas Distributors and United Distribution Companies joined the LDCs in arguing that the FERC should abandon its "direct nexus" test in favor of a presumption that an LDC would qualify for a contract-demand reduction as long as it provides service to the bypassing end user. They added that the contract-demand reduction should apply even if interruptible service were provided.

The FERC refuted the arguments, noting that PG&E and SCE had conceded that El Paso would not collect reservation charges twice. The FERC was not persuaded to view the sale of interruptible capacity as tantamount to double recovery of the reservation charge, nor was it persuaded to abandon the direct nexus test.

Commissioner Vicky A. Bailey dissented, finding that potential bypass losses of over $1.8 million for PG&E and over $14 million for SCE warranted at least a technical conference.

The project would add an overall boost to MP's system capacity of 400 to 875 MMcf/day. Unfortunately, the delays caused by litigation may have lost Mojave its expected customer base. Mojave president and CEO Michael Holland says the pipeline will not be built without support for at least 325 MMcf/day.

And if the pipeline is not built, competition will suffer a major blow, because the expansion would have enabled customers in Northern California to buy natural gas from a company other than PG&E for the first time. t

Lori A. Burkhart is an associate legal editor of PUBLIC UTILITIES FORTNIGHTLY.

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