By William A. Mogel, Attorney at Law
In this Emerging Issues Analysis, attorney William A. Mogel discusses Interstate Natural Gas Ass'n of America v. FERC [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], in which the D.C. Circuit Court of Appeals upheld FERC orders that permitted different ceiling prices for releases of short-term capacity on interstate natural gas pipelines.
“In a decision with significant commercial implications, the D.C. Circuit Court of Appeals upheld FERC orders that permitted different ceiling prices for releases of short-term capacity on interstate natural gas pipelines,” writes William Mogel. “As a result of this case, Interstate Natural Gas Ass'n of America v. FERC, No. 09-1016, 2010 U.S. App. LEXIS 16758 (D.C. Cir. Aug. 13, 2010) (INGAA), cost-based price ceilings were lifted permanently on shippers' releases of less than one year for unused firm capacity, while price ceilings were retained for short-term releases by pipelines. The effect is that shippers have a potential competitive advantage since they can charge market-based rates, which, it can be assumed, will be lower than a pipeline's cost-based price ceiling.”
“In 1992, as a result of FERC Order No. 636, an interstate natural gas pipeline's business changed from being a merchant, which ‘bundled’ its transportation service with sales of natural gas to local distribution companies and end users, to providing transportation for natural gas owned by third party shippers,” the author explains. “Upon determining that ‘bundling’ allowed pipelines to leverage their transportation monopoly to exploit the resale market, Order No. 636 restructured the pipeline industry in order to create competitive sales markets. According to the D.C. Circuit in INGAA, Order No. 636 mandated pipelines ‘unbundle’ their sales and transportation services, effectively deregulating the sales market while preserving cost-based regulation of pipelines' transportation services.”
“As part of Order No. 636's restructuring, shippers were permitted to sell or release their unused capacity to others, but at the same cost-based maximum rates set for pipeline capacity sales. In 2000, FERC issued Order No. 637, having determined that cost-based pricing ceilings for shipper releases prevented sales of unused capacity to parties willing to pay market-based rates, especially during periods of peak demand. Based on the foregoing, Order No. 637 modified the capacity release program by eliminating, for an experimental two-year period, price ceilings for shipper releases into the short-term market. However, price ceilings on pipeline sales of capacity were retained by Order No. 637 because of the belief that pipeline transportation is a natural monopoly, and, as such, cost-based rates could not be justified for entities that had the potential to exercise market power.”
Lexis.com subscribers can access the complete commentary, William A. Mogel on Interstate Natural Gas Ass'n of America v. FERC, No. 09-1016, 2010 U.S. App. LEXIS 16758 (D.C. Cir. Aug. 13, 2010). Additional fees may be incurred. (approx. 5 pages)
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William A. Mogel, Esq., focuses his practice on energy law. He has extensive experience with federal and state issues affecting the electric and natural gas industries. He regularly represents clients before FERC, state regulatory commissions and courts. Mr. Mogel founded and currently serves as Editor-in-Chief Emeritus of the Energy Law Journal. He is also a Director of the Foundation of the Energy Law Journal, a co-editor of Energy Law and Transactions, and the editor of Regulation of the Gas Industry, both published by LexisNexis Matthew Bender.